DOL Issues RFI on Fiduciary Rule

By Nevin Adams • June 30, 2017 • 0 Comments

The Department of Labor (DOL) has issued its request for comments on a potential delay in the Jan. 1, 2018, applicability date of certain provisions of the fiduciary regulation — but it’s a short window.

Specifically, the Request for Information (RFI) — which had been submitted to the Office of Management and Budget for review earlier this month — is looking for “public input that could form the basis of new exemptions or changes/revisions to the rule and prohibited transaction exemptions (PTEs), as well as input regarding the advisability of extending the Jan. 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.

Short Window

There will only be 15 days to comment on extending the Jan. 1, 2018, applicability date of certain provisions, while responses on the other questions are to be submitted to the DOL within 30 days.

In April the DOL also extended by 60 days the applicability dates of the Best Interest Contract Exemption and the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs to June 9, but also said that fiduciaries relying on these exemptions adhere only to the Impartial Conduct Standards (including the “best interest” standard, charging reasonable compensation and not making any materially misleading statements) from June 9, 2017, through Jan. 1, 2018.

Looking for Alternatives

As part of the RFI, the DOL noted that it is in the process of reviewing and analyzing comments received in response to its March 2, 2017, request for comments on issues raised in the Presidential Memorandum. While it is conducting that review, the DOL said 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.”

The DOL also said that public input on the rule and PTEs “has suggested that it may be possible in some instances to build upon recent innovations in the financial services industry to create new and more streamlined exemptions and compliance mechanisms,” specifically citing the possible development of “clean shares” as a long-term solution, though acknowledging that commenters have said that those clean shares wouldn’t be developed by Jan. 1. The DOL also cited other innovations described by commenters, such as insurance companies’ potential development of fee-based annuities, as well as new technology, and advisory and data services that could help financial institutions satisfy the supervisory requirements of the PTEs.

Streamlined Exemption?

The DOL said it was “particularly interested” in input as to whether it would be appropriate to adopt “an additional more streamlined exemption or other rule change for advisers committed to taking new approaches,” based on the potential for reducing conflicts of interest and increasing transparency. “If commenters believe more time would be necessary to build the necessary distribution and compliance structures for such innovations,” the DOL said, it was “interested in information related to the amount of time expected to be required.”

The RFI also poses a series of 18 specific questions, including:

  • Would a delay in the Jan. 1 date reduce burdens on providers, carry any risk, and what costs/benefits would be associated with that delay?

  • Does the fiduciary rule and PTEs “appropriately balance” consumer interest in broad-based investment advice while protecting them from conflicts of interest? Do they allow advisors to “provide a wide range of products that can meet each investor’s particular needs”?

  • What is the likely impact on advisers’ and firms’ compliance incentives if the department eliminated or substantially altered the contract requirement for IRAs?

  • Would mutual fund clean shares allow distributing financial institutions to develop policies and procedures that avoid compensation incentives to recommend one mutual fund over another? If not, why?

  • Are there ways to simplify the BIC Exemption disclosures or to focus the investor’s attention on a few key issues, subject to more complete disclosure upon request?

The clock, it seems, is ticking.