DOL Fiduciary Deadline Is Coming. Here’s a Compliance Checklist

Compliance firms and attorneys are busy giving advisors, BDs and plan sponsors a to-do list as the June 9 compliance date nears

Now that the Department of Labor has confirmed that its fiduciary rule’s compliance date will kick in on June 9, compliance firms and attorneys are busy providing checklists to broker-dealers, advisors and plan sponsors on how to prepare.

“We actually think the current state of affairs makes the most sense” in that the FAQs guidance issued by Labor on May 22 requires a best interest standard “without specifically mandating how firms must comply,” said Cipperman Compliance Services in a Thursday commentary. “The Investment Advisers Act takes that approach, and it has worked pretty well since 1940.”

(Related: New Evidence of Fiduciary Rule’s Harm, Chamber Report Says)

While compliance measures are in full swing, litigation over the rule continues. The nine groups appealing their case against the fiduciary rule in a Texas court have asked the judge overseeing the case to turn down DOL’s Wednesday request to extend filing their June 2 response brief. The coalition of firms still fighting the rule — which includes the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association and the Financial Services Institute, has filed in opposition to that request.  

Dominic DeMatties, a partner in Alston & Bird’s Employee Benefits & Executive Compensation Group, is advising plan sponsors to lock into place procedures “to help ensure their employees understand the effect of the rule including the impact of the rule on everyday interactions with plan participants.”

Also, he advised, “sponsors and service providers should keep an eye on, and may wish to get or continue to be involved in,” Labor’s continuing regulatory review and potential additional changes to the rule as the Jan. 1, 2018, best interest contract exemption deadline approaches.

The following is checklist by Cipperman of 10 noteworthy facts about the rule that firms should consider as they come into compliance:

DOL Fiduciary Rule Compliance Checklist

  1. Applies to IRAs: The rule applies to investment advice concerning IRAs, ERISA plans, and plans covered by Section 4975 of the Tax Code.
  2. Best interest standard starts June 9: Beginning June 9, financial institutions and advisors to covered plans must provide advice in the retirement investor’s “best interest,” which includes a duty of prudence and loyalty.
  3. BICE compliance starts Jan. 1: The extensive compliance requirements of the best interest contract exemption, which would apply to non-level fee products, are not in force until Jan. 1, 2018.
  4. DOL expects changes by Jan. 1: During the transition period (June 9-Jan. 1), Labor will collect additional information from the industry to determine how compliance practices such as the use of mutual fund “clean shares” should reshape the rule.
  5. Proprietary products with commissions permitted: During the transition period, firms can recommend proprietary products with commissions so long as they satisfy the best interest standard.
  6. Need policies and procedures: Labor expects firms to adopt policies and procedures necessary to ensure compliance with the best interest standard.
  7. Robo-advisors can rely on BICE: Robo-advisors may rely on the BICE during the transition period to ensure compliance with the rule.
  8. Investment advice narrowly defined: Investment advice, for purposes of the rule, does not include plan information or general financial, investment and retirement information.
  9. Can rely on written representations from intermediaries: The rule does not apply if an independent fiduciary provides written representations (including negative consent) that the fiduciary is a bank, insurance company, BD, RIA, or independent fiduciary managing at least $50 million.
  10. DOL will focus on compliance over enforcement: Labor says it will prioritize compliance over enforcement during the transition period so long as firms work diligently and in good faith to comply with the rule.

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