The Labor Department announced late on June 29 that it intends to publish a Request for Information on the fiduciary rule. When published as scheduled on July 6 in the Federal Register, the RFI will provide a public opportunity for comment on both the basis for new exemptions or changes/revisions to the rule and prohibited transaction exemptions (PTEs) as well as the advisability of extending the January 1, 2018, applicability date of certain provisions in the Best Interest Contract Exemption, the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs, and Prohibited Transaction Exemption 84-24.
Fiduciary rule controversy. The final rule was published in the Federal Register on April 8, 2016; it became effective June 7, 2016. The rulemaking included a new Best Interest Contract Exemption (BICE) and amendments to PTEs. Much controversy has surrounded the rule, which has been the subject of congressional committee hearings. Opponents of the rule complained that, among other things, it would restrict access to affordable retirement advice for low- and middle-income families and make it harder for small businesses to offer retirement plans to their employees. Some industry groups, however, having prepared to comply with what they consider requirements that are in their clients’ best interests, have also viewed the rule favorably and urged against delay in its implementation.
The rule was initially slated to be applicable as of April 10, 2017. Under the DOL’s May 22 announcement of its temporary enforcement policy, on June 9, investment advice providers to retirement savers became “fiduciaries,” and the “impartial conduct standards” became requirements of the exemptions. Other exemption conditions originally scheduled to become applicable on April 10 were to be delayed to January 1, 2018, while the DOL continues to conduct an ongoing examination of the rule as required under a presidential directive.
Temporary enforcement policy. The May 22 announcement of the temporary enforcement policy covered the transition period between June 9, 2017, and January 1, 2018, during which the Department will not pursue claims against investment advice fiduciaries who are working diligently and in good faith to comply with their fiduciary duties and to meet the conditions of the PTEs, or otherwise treat those investment advice fiduciaries as being in violation of their fiduciary duties and not compliant with the PTEs.
The Department also published on May 22 a set of FAQs to provide additional information on this transition period. In both the temporary enforcement policy and FAQs the DOL said it intended to issue a Request for Information (RFI) for additional public input on specific ideas for possible new exemptions or regulatory changes based on recent public comments and market developments.
New RFI. While the DOL is still reviewing and analyzing comments received in response to its March 2 request for comments on issues raised in the Presidential Memorandum, it announced in its RFI that it is also interested in receiving additional input from the public about possible additional exemption approaches or changes to the fiduciary rule, as well as regarding the advisability of extending the January 1, 2018, applicability date of certain provisions in the Best Interest Contract Exemption, the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs, and Prohibited Transaction Exemption 84-24.
New innovations? Public input suggested to the DOL that it may be possible in some cases to build upon recent innovations in the financial services industry to create new and more streamlined exemptions and compliance mechanisms. For example, one recent innovation is the possible development of mutual fund “clean shares.” Many firms appear to be considering the use of such “clean shares” as a long-term solution to the problem of mitigating conflicts of interest with respect to mutual funds, the DOL noted. But commenters noted that funds will need more time to develop clean shares than contemplated by the current January 1, 2018, deadline.
Commenters also described innovations in other parts of the retirement investment industry, such as insurance companies’ potential development of fee-based annuities in response to the fiduciary rule. Firms are also developing new technology, and advisory and data services to help financial institutions satisfy the supervisory requirements of the PTEs. DOL is specifically seeking information on these developments and their relevance to the rule, the PTEs’ terms, and compliance timelines.
The DOL says it is particularly interested in public input on whether it would be appropriate to adopt an additional, more streamlined exemption or other rule change for advisers committed to taking new approaches like those outlined above based on the potential for reducing conflicts of interest and increasing transparency.
Some of the more general questions asked by the DOL concern:
- The impact of a delay in the January 1, 2018, applicability date on more efficient implementation responsive to recent market developments, and the risks, costs, and benefits associated with such a delay.
- What the regulated community has done to comply with the rule and PTEs to date, particularly including the period since the June 9, 2017, applicability date.
- Whether the rule and PTEs appropriately balance the interests of consumers in receiving broad-based investment advice while protecting them from conflicts of interest.
- With respect to the additional exemption conditions that are currently scheduled to become applicable on January 1, 2018, such as the contract requirement for IRAs, to what extent would the incremental costs of the additional exemption conditions exceed the associated benefits and what are those costs and benefits.
Comments. The RFI is slated to be published in the Federal Register July 6, so comments relating to extending the January 1, 2018, applicability date of certain provisions will need to be submitted to the Department on or before 15 days from that date of publication. Comments in response to all other questions should be submitted to the Department on or before 30 days from the July 6 date of Federal Register publication.
Contact Brian Shiker, telephone (202) 693-8824, Office of Exemption Determinations, Employee Benefits Security Administration. All written comments should be sent to the Office of Exemption Determinations by any of the following methods, identified by RIN 1210-AB82:
- Federal eRulemaking Portal: http://www.regulations.gov at Docket ID number: EBSA-2017-0004. Follow the instructions for submitting comments.
- Email to: EBSA.FiduciaryRuleExamination@dol.gov.
- Mail: Office of Exemption Determinations, EBSA, (Attention: D-11933), U.S. Department of Labor, 200 Constitution Avenue, NW, Suite 400, Washington DC 20210.
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