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Saxon Angle | Published in June 2017

The Fiduciary Rule Moves On

Key points of the most recent guidance

By Stephen M. Saxon | June 2017

PS-Portrait-Article-Saxon_JCiardiello.jpgArt by Joseph CiardielloOver the last few weeks, the Department of Labor (DOL) has issued three major pieces of guidance on its fiduciary rule. The most significant was an announcement by Secretary of Labor R. Alexander Acosta that the rule will indeed become applicable on June 9, as planned. In an op-ed that appeared in the May 23 Wall Street Journal, he stated that fact, also noting, “The fiduciary rule as written may not align with President Trump’s deregulatory goals,” however that his department had concluded there was “no principled legal basis to change the June 9 date.”

The other two important pieces were posted on the DOL’s website the evening of May 22. These were a nonenforcement policy on the rule, found in Field Assistance Bulletin (FAB) No. 2017-02, and a set of FAQ titled “Conflict of Interest FAQ (Transition Period).” Both the FAB and the FAQ contain guidance that assists the retirement plan community. Below, we describe the key points of all three.
 
Timing guidance. As mentioned above, the implementation date will remain June 9, despite the industry’s efforts to further delay it. The op-ed discussed the inability to delay the date while respecting the Administrative Procedure Act.
 
Nonenforcement guidance. In keeping with earlier statements, the DOL’s nonenforcement policy is meant to encourage good faith compliance efforts and reduce the risk of litigation while the fiduciary rule remains in flux. The key takeaway from the FAB is that, “during the phased implementation period ending on January 1, 2018, [the DOL] will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions.”
 
Guidance regarding anticipated changes. Because, as Acosta’s op-ed made clear, the current fiduciary rule is not aligned with Trump administration goals, all three pieces of rule guidance anticipate that further changes may extend the transition period beyond January 1.
 
Recommendation guidance. The DOL offered some additional guidance regarding communications it would not consider as being a recommendation under the fiduciary rule. It examined three specific communications and, helpfully, stated that educational materials are excluded “irrespective of who provides or makes available the information and materials (e.g., plan sponsor, fiduciary or service provider), the frequency with which the information and materials are provided, the form in which [they] are provided (e.g., on an individual or group basis, in writing or orally, or via call center, video or computer software), or whether an identified category of information and materials is furnished or made available alone or in combination with other categories... provided that the information and materials do not include (standing alone or in combination with other materials) recommendations with respect to specific investment products or specific plan or IRA [individual retirement account] alternatives, or recommendations with respect to investment or management of a particular security or securities or other investment property.”
 
BIC transition period compliance guidance. A series of questions provide guidance on the requirements of the best interest contract (BIC) exemption during the transition period. In the FAQ, the DOL states that, during that period, the only requirement for exemptive relief under the BIC is compliance with the impartial conduct standards. The DOL summarized these standards using different language than it had in prior guidance:

 Give advice that is in the “best interest” of the retirement investor. This best interest standard has two chief components: prudence and loyalty;

  • Under the prudence standard, the advice must meet a professional standard of care as specified in the text of the exemption
  • Under the loyalty standard, the advice must be based on the interests of the customer, rather than the competing financial interest of the adviser or firm;
  • Charge no more than reasonable compensation; and
  • Make no misleading statements about investment transactions, compensation and conflicts of interest.

We expect that the DOL will continue to make changes to the fiduciary rule in connection with the memorandum issued by President Trump. While it is unclear how the rule will look after Acosta’s DOL finalizes its review, it is clear after the most recent guidance that we will have a new fiduciary rule after all.

Stephen Saxon is a partner with Groom Law Group, Chartered, headquartered in Washington, D.C. George Sepsakos, an associate with Groom, contributed to this article.  

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