DOL Answers Transition Period Questions in New FAQs

By Nevin Adams • May 23, 2017 • 0 Comments

The Department of Labor (DOL) has published a new set of FAQs about the fiduciary regulation, these focused on the so-called “transition period” from June 9, 2017 to Jan. 1, 2018.

The big question on many minds is likely to be found in Question 4, which asks: “Will the Department make additional changes to the Fiduciary Rule or exemptions?” The short answer provided by the DOL is, “it’s possible,” certainly following the results of the analysis directed by President Trump. However, the answer goes on to outline some future developments, including:

  • The DOL’s intention to issue a Request for Information (RFI) “in the near future” for additional public input on “specific ideas for possible new exemptions or regulatory changes based on recent public comments and market developments.”

  • That the RFI will specifically ask for public comment on “whether an additional delay in the Jan. 1, 2018 applicability date would allow for more effective retirement investor assistance and help avoid needless or excessive expense as firms build systems and compliance structures that may ultimately be unnecessary or mismatched with the Department’s final decisions on the issues raised by the Presidential Memorandum.”

  • The notion that “by granting additional time and perhaps creating a new streamlined exemption based upon the use of clean shares and other innovations for example, it may be possible for firms to create a compliance mechanism that is less costly and more effective than the sorts of interim measures they might otherwise use.”

Other Issues

The FAQs address the timing and boundaries of the transition period, specifically application of the impartial conducts standard during the transition period (Q1), the timing of compliance with the new conditions in other preexisting exemptions that were amended in connection with the fiduciary rule (Q3 – June 9), dealing with potential conflicts of interest during the transition period that won’t be thereafter following the creation of new compensation systems (Q6), the impact of the delay in applicability dates on the grandfathering relief in Section VII of the BIC (Q8), and how the Labor Department plans to approach implementation of the fiduciary rule and exemptions during the transition period (Q15).

The FAQs also provide three customer communication scenarios that the DOL notes would constitute education, not investment advice (Q11), and address the question of non-client-specific model portfolios (Q14).

Three of the 15 questions deal with PTE 84-24: transactions involving IRAs (Q9), what types of payments are covered (Q10), and when parties have to comply with the new conditions (Q2 – here you can rely on PTE-84-24, subject to the existing conditions of the exemption and the impartial conduct standards, for recommendations involving all annuity contracts during the transition period).

Among the other questions posed (and answered) are:

  • Does the decision to have the fiduciary rule and impartial conduct standard become effective on June 9 mean that the review under the President’s Memorandum has effectively been concluded? (Q5 — No. Who says there are no such things as stupid questions?)

  • Can robo-advisors and other level-fee advisers rely on the BIC during the transition period? (Q7 — Yes.)

  • Is full compliance with the fiduciary rule and exemptions required before the close of business on June 9, 2017 (Q11 — No. Parties need not come into compliance until 11:59 PM (or immediately before midnight at the end of the day) local time on June 9, 2017).

The FAQs come in the wake of the DOL's May 22 issuance of Field Assistance Bulletin (FAB) 2017-02 and Secretary of Labor Acosta’s announcement that he won’t delay implementation of the fiduciary regulation.

The DOL notes that on April 7, it announced that the applicability dates of the rule and related PTEs would be delayed from April 10, 2017 to June 9, 2017, with certain provisions in the exemptions further delayed to Jan. 1, 2018.






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