The new fiduciary standard is set to begin on June 9. Are you ready?

On Tuesday, April 4, 2017, the Department of Labor finalized a delay to the applicability date of the Fiduciary Rule until June 9, 2017

Introduction

Following President Trump’s February 3, 2017 memorandum (the “Presidential Memorandum”)1 directing the Department of Labor (DOL) to prepare an “updated economic and legal analysis concerning the likely impact” of its “Conflict of Interest Rule” on fiduciary investment advice (the “Rule”) and related prohibited transaction exemptions (PTEs), the DOL finalized a delay to the initial applicability date of the Rule until June 9, 2017.2

The DOL also delayed the initial applicability date of the Best Interest Contract (BIC) Exemption, the Class Exemption for Principal Transactions, and amendments to other previously granted exemptions until June 9, 2017.  The applicability date of the Impartial Conduct Standards in these exemptions is extended until June 9, 2017, while compliance with other conditions for transactions covered by these exemptions (e.g., specific disclosures and representations of fiduciary compliance in written communications with investors) is not required until January 1, 2018.3

In addition, the DOL delayed the initial applicability of amendments to PTE 84-24 for certain insurance companies and agents until January 1, 2018 (other than the Impartial Conduct Standards, which will be applicable on June 9, 2017).

The DOL argued that these extensions are necessary to enable it to examine whether the Rule may adversely affect the ability of Americans to gain access to retirement information and financial advice, and to prepare the updated economic and legal analysis pursuant to the Presidential Memorandum.  The extensions will also allow the DOL to “consider possible changes with respect to the Rule and PTEs based on new evidence or analysis developed pursuant to the examination.”4

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Department of Labor issues proposal to delay Fiduciary Rule

On Thursday, March 2, 2017, the Department of Labor published a proposal that would delay the Fiduciary Rule by 60 days; comments will be accepted until March 17, 2017

Introduction

On February 3, 2017, President Donald J. Trump issued a memorandum (the “Presidential Memorandum”) directing the Department of Labor (DOL) to examine its “Conflict of Interest Rule” on fiduciary investment advice (the “Rule”) and related prohibited transaction exemptions (PTEs) to “determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.”1 The Presidential Memorandum also raised concerns that the Rule “may not be consistent with the policies of [the] Administration.”

The Presidential Memorandum did not directly delay or order a delay in the Rule’s initial April 10, 2017 applicability date, but directed the DOL to prepare an “updated economic and legal analysis concerning the likely impact” of the Rule.

If the DOL makes an affirmative determination pursuant to these considerations or if it concludes for any other reason that the Rule is inconsistent with the priorities outlined in the Presidential Memorandum, it is directed to publish a proposed rule to rescind or revise the Rule, as appropriate and consistent with law.

On March 2, 2017, the DOL published in the Federal Register a proposed rule that would extend the applicability date of the Rule and PTEs for 60 days (i.e., until June 9, 2017) to allow the DOL to “address questions of law and policy.”2

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White House directs Department of Labor to review Fiduciary Rule

On Friday, February 3, 2017, the White House issued a memorandum to the Secretary of the Department of Labor ordering an updated economic and legal analysis.

Since the Department of Labor’s (DOL’s) “Conflict of Interest Rule” (the “Rule”) and related prohibited transaction exemptions were finalized in April 2016, many impacted organizations have expressed reservations about the timeline and the volume of complex work required in order to be compliant by April 10, 2017.

Due to concerns that the Rule “may significantly alter the manner in which Americans can receive financial advice, and may not be consistent with the policies of [the] Administration,”1 President Donald J. Trump issued a memorandum (the “Presidential Memorandum”) directing the DOL to examine the Rule to “determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.”

The memorandum does not directly delay or order a delay to the Rule’s applicability date, but it directs the DOL to prepare an “updated economic and legal analysis concerning the likely impact” of the Rule, which shall consider, among other things:

  • Whether the anticipated applicability of the Rule “has harmed or is likely to harm investors due to a reduction of Americans’ access to certain retirement savings offerings, retirement product structures, retirement savings information, or related financial advice,”
  • Whether the anticipated applicability of the Rule “has resulted in dislocations or disruptions” within the retirement services industry that may adversely affect investors or retirees, and
  • Whether the Rule is “likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.”

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Regulatory, legislative efforts focused on ACA repeal move forward as Congressional Budget Office releases new health coverage projections

Hours after taking the oath of office on Friday, January 20, 2017, President Trump signed an executive order that opens the door for the secretaries of the departments of Health and Human Services (HHS), the Treasury, and Labor, as well as the leaders of other federal agencies, to take regulatory action to ease requirements under the Affordable Care Act (ACA) or waive or delay enactment of certain provisions.

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Update on the Department of Labor’s fiduciary proposal

Will Congressional activity affect the rule?

Update on the Department of Labor’s fiduciary proposal

Since the Department of Labor (DOL) proposed its “Conflicts of Interest” rule in April, the DOL has been in the process of finalizing the rule, which would expand the definition of “fiduciary” advice and rules governing conflicts of interest to cover broad swaths of the brokerage, investment management, and insurance industries. Top executives of leading institutions have characterized the rule as one of the biggest regulatory changes facing the financial services industry in years. If finalized, it would have a significant impact on revenue streams, business models, products, services and customer experience. The proposal was met with opposition from certain trade associations, market participants, and members of Congress. Despite various calls for the DOL to re-propose or withdraw the rule, as well as various legislative efforts to delay or modify it, the DOL may move forward with a final rule. However, there are ongoing efforts to include language in an appropriations bill that would block funding for the rule. In a speech1 at the Brookings Institution on June 23, 2015, DOL Secretary Tom Perez defended the proposal, the finalization of which he described as “one of the single most important steps [the DOL] can take to assist people preparing for retirement.” Further, in an August 7, 2015 letter2 to Rep. Ann Wagner (R-MO), he stated that the DOL “will move forward towards issuing a final rule that balances the input” it has received. In another speech at the Brookings Institution on October 16, 2015, Secretary Perez stressed3 that the DOL has “proceeded with the utmost caution and deliberation” throughout the rulemaking process and argued that, because of this approach, the “final rule will be stronger for it.”

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Proposal to apply fiduciary standards to retirement advice could have a far-reaching impact on financial services


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On April 20, 2015, the Department of Labor (“DOL”) proposed regulatory changes that could have a widespread impact on the financial services industry. The amended rules are designed to protect the public from questionable retirement investment advice by requiring retirement advisers to follow strict “fiduciary” standards – putting their clients’ best interests before their own. However, the potential ripple effect of the proposed changes extends far beyond the realm of retirement advice.

Existing rules in this area were defined by the Employee Retirement Income Security Act of 1974 (ERISA), which was established at a time when professionally managed pension funds were the retirement norm. Over the past 40 years, however, self-managed investments such as Individual Retirement Accounts (IRAs) have taken over as the primary way to save for retirement – increasing the risk and impact that ordinary, middle class investors will be harmed by bad advice from retirement advisers tempted by hidden fees, back-door payments, and other conflicts of interest.

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