As noted in previous postings, the Department of Labor's fiduciary rule is in flux right now.
By way of background, on April 6, 2016, the U.S. Department of Labor issued its final rule expanding the “investment advice fiduciary” definition under the Employee Retirement Income Security Act of 1974 (ERISA) and modifying the complex of prohibited transaction exemptions (PTEs) for investment activities in light of that expanded definition. The DOL has delayed the rule’s April 10 applicability date by 60 days, to June 9, 2017,pending receipt and review of comments which were due last Friday, March 17. Its decision to seek the delay was made in order to comply with President Donald Trump’s presidential directive to review and possibly revise or rescind the rule. Further developments may occur shortly.
In addition, on March 10, 2017, the DOL announced the following temporary enforcement rule:
• In the event the DOL issues a final rule after April 10 implementing a delay in the applicability date of the fiduciary duty rule and related PTEs, the DOL will not initiate an enforcement action because an adviser or financial institution did not satisfy conditions of the rule or the PTEs during the “gap” period in which the rule becomes applicable before a delay is implemented, including a failure to provide retirement investors with disclosures or other documents intended to comply with provisions of the rule or the related PTEs.
• In the event the DOL decides not to issue a delay in the fiduciary duty rule and related PTEs, the DOL will not initiate an enforcement action because an adviser or financial institution, as of the April 10 applicability date of the rule, failed to satisfy conditions of the rule or the PTEs provided that the adviser or financial institution satisfies the applicable conditions of the rule or PTEs, including sending out required disclosures or other documents to retirement investors, within a reasonable period after the publication of a decision not to delay the April 10 applicability date. The DOL will also treat the 30-day cure period under Section IX(d)(2)(vi) of the BIC Exemption and Section VII(d)(2)(v) of the Principal Transactions Exemption as available to financial institutions that, as of the April 10 applicability date, did not provide to retirement investors the disclosures or other documents described in Section IX(d)(2)(vi) of the BIC Exemption and Section VII(d)(2)(v) of the Principal Transactions Exemption.
The DOL stated that to the extent that circumstances surrounding the decision on the proposed delay of the April 10 applicability date give rise to the need for other temporary relief, including prohibited transaction relief, it will consider taking such additional steps as necessary.
Practical Perspectives: Small dually registered brokers and advisers really have no choice but to implement or be ready to implement significant changes to their operations. We've heard of some larger brokerages and advisers suspending certain of their new programs designed to comply with the DoL rule, but they have the resources and program alternatives to quickly react to changes. Tread carefully: it's difficult to make definitive business decisions in this changing regulatory environment.
- Great blog posts by a Drinker Biddle partner:
- Focusing on current what to do now: http://fredreish.com/interesting-angles-on-the-dols-fiduciary-rule-40/
- Scenarios under the enforcement release: http://www.drinkerbiddle.com/insights/publications/2017/03/dol-issues-temporary-enforcement-relief