retirement industry and signaled that the Trump Administration and the ... materials (e.g., on an individual or group ba
The Beacon RETIREMENT SERVICES
TR AIN RE MA I N S O N T R A C K FOR DOL’ S F IDU C I A RY RU LE In spite of the hopes and efforts of many in the industry, the
AUTHOR SAMUEL A. HENSON, JD Vice President Director of Legislative & Regulatory Affairs
Department of Labor’s (DOL’s) redefinition of fiduciary advice (the “Fiduciary Rule”) survived the latest threat to its derailment and remains on schedule for a June 9 arrival. Late Monday, May 22, three significant events surprised most of the retirement industry and signaled that the Trump Administration and the Secretary of Labor would not (for now) fight the Fiduciary Rule’s impending implementation.
The Wall Street Journal Surprise In an op-ed appearing in The Wall Street Journal’s May 23, 2017, edition, Secretary of Labor Andrew Acosta announced that the DOL would not delay the June 9, 2017, applicability date. In the op-ed, Acosta noted that “the fiduciary rule as written may not align with President Trump’s deregulatory goals,” however he concluded there was “no principled legal basis to change the June 9 date.”
DOL Enforcement Takes a Vacation In the late hours of May 22, the DOL posted a Temporary Enforcement Policy on Fiduciary Rule 2017-02 (the “FAB”). Here the DOL announced a non-enforcement policy that it hoped would encourage good faith compliance efforts and reduce litigation risk over the months leading up to full implementation on January 1, 2018. Until then, the DOL said it would not pursue claims against those working in good faith to comply with the fiduciary duty rule or treat them as being in violation.
Helpful FAQs Also late on May 22, the DOL issued FAQs titled “Conflict of Interest FAQs (Transition Period)” addressing 15 questions about the period from June 9, 2017, to January 1, 2018. While many of the FAQs reiterate previous guidance, there are some rather interesting and helpful points.
Common Communications The DOL described common communications that would not be considered recommendations under the Fiduciary Rule. Here the DOL noted that certain educational recommendations are excluded from the Fiduciary Rule irrespective of who provides the information (e.g., plan sponsor, fiduciary, or service provider), the frequency of delivery, or the form of the materials (e.g., on an individual or group basis, in writing or orally, or via call center, video, or computer software).
The Best Interest Contract (BIC) Several FAQs provide guidance on the BIC Exemption during the transition period, specifically limiting the BIC requirement to compliance with the Impartial Conduct Standards. This requires giving advice that is in the retirement investor’s “best interest,” requiring prudence and loyalty. Prudence requires the advice to meet a professional standard of care. Loyalty requires the advice to be based on the customer’s interests rather than the advisor’s or firm’s competing financial interests. In addition, the advisor may charge no more than reasonable compensation and may make no misleading statements about investment transactions, compensation, and conflicts of interest. The DOL clarified that these standards can be met even if a fiduciary advisor recommends proprietary products or investments that generate commissions or other variable payments so long as the recommendations are prudent; the investment advice is based on the customer’s financial interests, rather than the advisor’s competing financial interests in the transaction; the communications are free from material misrepresentations; and the associated fees and charges are reasonable.
Timeline The applicability date remains June 9, 2017, despite efforts to further delay the implementation. The Wall Street Journal’s oped discusses the inability to delay the applicability date while respecting the Administrative Procedure Act. In the FAQs, the DOL makes clear that the Fiduciary Rule and related exemptions will become applicable immediately before midnight, 11:59 p.m. local time, on June 9, 2017.
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LOCK TON ’ S TA K E This was truly an unforeseen series of events. The Trump Administration had already pushed the rule back 60 days from April 9 to June 9, leaving many to believe that this would allow a Labor Secretary to be confirmed and build a way to derail the rule. When Secretary Acosta was confirmed in late March, this seemed to play according to plan, and just two weeks ago, in a meeting with Sen. Tim Scott (R-SC), Acosta said that seeking a permanent way to freeze the Fiduciary Rule was his number one priority. Fast-forward and Acosta drafts a surprise op-ed in The Wall Street Journal, basically waiving a white flag at least until January 1, 2018. While the op-ed makes it clear that the current Fiduciary Rule is not in keeping with the goals of the Trump Administration, the future is now much murkier. There were a few different ways the Trump Administration could have delayed the Fiduciary Rule beyond June 9. They could have relied on new economic analysis that shows the negative impact of the Fiduciary Rule’s implementation on the retirement system. They could have also relied upon rule-making procedures that allow a regulation’s delay in light of litigation (there are five pending cases against the Fiduciary Rule). But, in the end, we think it was political. The Trump Administration has lost several court challenges to policies and many suspect that the President was not willing to risk further losses with the Fiduciary Rule. For those opposing the Fiduciary Rule, not all hope is lost. Between the op-ed, the Enforcement FAB, and the FAQs, the DOL has left the door open for further changes to happen, even allowing for a potential extension of the transition period beyond January 1, 2018. In the meantime, all aboard.
The communication is offered solely for discussion purposes. Lockton does not provide legal or tax advice. The services referenced are not a comprehensive list of all necessary components for consideration. You are encouraged to seek qualified legal and tax counsel to assist in considering all the unique facts and circumstances. Additionally, this communication is not intended to constitute US federal tax advice, and is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending any transaction or matter addressed herein to another party. This document contains the proprietary work product of Lockton Financial Advisors, LLC, and Lockton Investment Advisors, LLC, and is provided on a confidential basis. Any reproduction, disclosure, or distribution to any third party without first securing written permission is expressly prohibited. Securities offered through Lockton Financial Advisors, LLC, a registered broker-dealer and member of FINRA, SIPC. Investment advisory services offered through Lockton Investment Advisors, LLC, an SEC-registered investment advisor. For California, Lockton Financial Advisors, LLC, d.b.a. Lockton Insurance Services, LLC, license number 0G13569.
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