Despite the views of many industry experts, the June 9 applicability date for the Department of Labor (DOL) fiduciary rule was not delayed further—meaning that financial professionals and their firms must now take steps to comply in good faith with the rule’s requirements.
This rule will impact a wide group of advisors, including those that sell indexed and variable annuity products, as well as those who provide investment recommendations regarding retirement savings generally. Because of this, it is crucial that these advisors understand what the June 9 applicability date actually means—and how business can practically be conducted without incurring liability and running
June 9 Compliance Obligations
While the applicability date for the DOL fiduciary rule is June 9, 2017, only certain portions of the rule go into effect on that date—many other provisions are only effective beginning January 1, 2018. Further, the DOL has released guidance indicating that it will focus on compliance efforts, rather than enforcement, during the transition period (June 9, 2017 – January 1, 2018). Therefore, as long as advisors make reasonable, good faith efforts to comply with the rule’s terms, they should not be subject to penalty.
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Generally, beginning June 9, advisors must (1) make no misleading statements to clients, (2) receive only reasonable compensation and (3) make investment recommendations that are in the client’s best interests.
The DOL has recently released guidance providing that sales of fixed indexed and variable annuities may continue to be made under the previously existing rules until the January 1, 2018 full effective date. Further, during the transition period advisors may rely upon the best interest contract exemption for newly designed compensation structures that have been developed in order to reduce the potential for conflicts (but that may not be perfected by the June 9 deadline). During the transition period, advisors must simply ensure that the rule’s impartial conduct standards are followed.
Certain level fee providers and “robo” advisors will be considered to meet the best interest contract exemption standards so long as they satisfy the impartial conduct standards. This is the case even though they may not fully satisfy the rule’s disclosure obligations (meaning that they need not acknowledge their fiduciary status to clients) or documentation requirements.
Future Compliance Obligations