What the DOL’s New RFI Might Tell Us About a Future BICE

By ASPPA Net Staff • July 17, 2017 • 0 Comments
The Department of Labor’s (DOL) recent request for information (RFI) about the fiduciary regulation indicate the issues of greatest interest to the DOL. Fred Reish looks at two issues concerning the Best Interest Contract Exemption (BICE) in that RFI.

In a recent (54th, but who’s counting) blog post, Reish says he expects an extension of the transition rules, now scheduled to expire on Dec. 31 of this year. “While it is always risky to make predictions, I think that the transition period will be extended, perhaps through the end of 2018,” he writes.

He goes on to opine that during the “transition” the BICE requires only that the “financial institution” (i.e., the broker dealer or RIA firm) and the adviser “adhere to” the Impartial Conduct Standards (ICS), but that he thinks the DOL will find that those protections are adequate for the intervening period as financial institutions transition to the new fiduciary regime, and that “delaying compliance with additional requirements for contracts, disclosures, etc., will not negatively impact qualified investors in a material way.”

Reish then turns to two other RFI questions on the BICE (#5 and #6). The first explores the impact on compliance incentives if the contract requirement for IRAs was eliminated or substantially altered; the second asks about the impact if the DOL “eliminated or substantially altered the warranty requirements.”

On these points Reish says the outcome is “less clear” in that the DOL needs to balance the burdens of compliance with protection of retirement investors. He notes that the cost, complexity and possible litigation implicit in those requirements could cause financial institutions to limit the range of investments and/or to increase their charges to investors — but on the other hand, IRA retirement investors don’t have the same routes of relief as do plans and participants who can file claims under ERISA.

“While I can’t predict the outcome, I believe that the DOL will try to balance those considerations, with the objective of providing retirement investors with access to a wide range of investments without increasing their costs, but at the same time providing an opportunity for enforcement of the best interest standard of care,” Reish concludes.

Not that that sheds any clarity on the actual outcome of those deliberations.