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Tuesday, June 6, 2017

The Department of Labor has issued guidance in the form of Frequently Asked Questions to help firms and their advisers impacted by the Fiduciary Rule know what is expected on and after June 9, 2017, on and after January 1, 2018, and during the period between (the “Transition Period”).  We’ve outlined a few of the highlights below:

As of June 9, 2017, firms and their advisers must comply with the “Best Interest Contract Exemption” and the “Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs”.  However, fewer conditions must be met to comply with these exemptions during the Transition Period.

As described fully in the Fiduciary Rule, the “impartial conduct standards” generally require fiduciaries to make recommendations that are prudent, loyal, and free from material misrepresentation and to receive only reasonable compensation for such recommendations.  The impartial conduct standards do not apply to PTE 84-24 until January 1, 2018 but apply to PTEs 75-1, 77-4, 80-83, 83-1, and 86-128 on and after June 9, 2017.

The DOL reassured firms implementing new compensation systems which will not be in place by June 9, 2017, that their advisers may still satisfy the impartial conduct standards – by, for example, disclosing that a certain recommended investment benefits the adviser more than another investment.

Of specific interest to plan sponsors is Question 12.  There, the DOL outlines three types of communications a plan (including its representatives and an interactive tool) has with a participant and confirms all three still are not considered investment advice covered by the Fiduciary Rule because the plan only provided plan information or general financial, investment, and retirement information.

The DOL also used these FAQs as a forum to explicitly state that making certain provisions applicable June 9th does not mean its review of the Fiduciary Rule (pursuant to the Presidential Memorandum issued February 3, 2017) is complete.  Changes may be forthcoming, but until a further delay or change to the Fiduciary Rule is announced, good faith efforts to comply with the Fiduciary Rule as it is currently drafted are required.

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