Despite industry trade groups’ insistence that the Department of Labor delay the implementation date of its fiduciary rule for years, ERISA attorneys continue to recommend that advisors and broker-dealers push ahead in their compliance steps.
The first deadline under a two-part request for information issued by Labor on June 29 expired Friday. The department sought comments on whether it should delay the fiduciary rule’s Jan. 1 compliance date. The the second part of the RFI, with a comment period ending Aug. 7, solicits feedback on 18 questions about the rule.
The Investment Company Institute said in its comment letter that Labor “must immediately” delay the January applicability date for the “remaining elements” of the fiduciary rule, including the conditions of the Best Interest Contract Exemption (BICE) and other exemptions.
The rule itself along with the Impartial Conduct Standards, which took effect on June 9, would continue to apply during the delay, wrote ICI Acting General Counsel Dorothy Donohue.
Postponing the January compliance date would “reduce harm to investors and provide certainty to the industry while the agency considers additional modifications to the rule and exemptions,” Donohue wrote. Delay, she continued, will also give Labor Secretary Alexander Acosta “the needed time to coordinate fiduciary rulemaking with Securities and Exchange Commission Chair Jay Clayton — which is the most desirable way to achieve a consistent approach that puts investors’ interests first.”
ICI’s letter urges Labor to issue an interim rule by Aug. 15 to delay the Jan. 1 BICE implementation date until Jan. 1, 2019.
The mutual fund trade group asked that the department “simultaneously announce” that it expects to finalize modifications to the rule and the relevant exemptions before the end of any delay period.
ICI also requested that Labor “declare now that these changes will not take effect until at least Jan. 1, 2020 — one year after they are finalized.”
The U.S. Chamber of Commerce also urged Labor in its comment letter to extend the transition period for at least 18 months, from Jan. 1, 2018 to June 30, 2019, or “a later date if needed.”
Extending the transition period until June 30, 2019, or a later date “is essential for responsible rulemaking that protects the best interests of retirement investors,” Chamber said. “Similarly, providing at least a one-year transition period following any amendments to the rule is essential to orderly, efficient rulemaking.”
The Securities Industry and Financial Markets Association urged that the Jan. 1 compliance date be extended by a minimum of 24 months. “Piecemeal delays cause retirement investors confusion, uncertainty and additional cost,” SIFMA said in its comment letter.
Fred Reish, partner in Drinker Biddle & Reath’s employee benefits and executive compensation practice group in Los Angeles, told ThinkAdvisor on Monday that Labor will likely issue a proposed delay “in September, give or take 30 days.”
Reish’s colleague, Joshua Waldbeser, an associate in Drinker Biddle’s Chicago office, who participated in a recent ThinkAdvisor webcast about the fiduciary rule, stated that with RFI comments in hand, “my prediction is that the DOL is going to have the ammunition it needs this time to delay the rule significantly. If I were betting, I would say that the transition period could probably be delayed by a year — could be less, could be more.”
As Waldbeser explained on the webcast, for compliance with BICE and the rule’s other principal transaction exemptions, “the only thing you have to be doing right now during the transition period is ensuring that advice is consistent with the best interest of clients; that the compensation to the advisor, the firms are reasonable — and that’s an industry standard and not a legal one; and that there are no misleading statements being made to investors.” These are collectively known as the Impartial Conduct Standards.
Allison Wielobob, counsel with Eversheds Sutherland, who also participated on the ThinkAdvisor webcast, stated, however, that the January compliance date will likely be “pushed out,” with “maybe some reduced compliance conditions under the BICE, but I think we’re going to keep most of it.”
Why? Acosta “is an academic; he’s being careful … and is following the Administrative Procedures Act to the letter and being careful so that they don’t make mistakes that will come back to haunt them,” Wielobob said.
That said, both Wielobob and Waldbeser offered webcast participants the following fiduciary rule compliance checklist:
- Review/assess marketing materials, training materials, investment products, conflicts of interest including third-party payments, compensation practices
- Adopt written policies and procedures to comply with Impartial Conduct Standards
- Designate persons to address and monitor compliance with Impartial Conduct Standards
- Review and confirm statements by the firm about the recommended transaction, fees and compensation, material conflicts of interests, and any other matters relevant to a client’s investment decisions, are not materially misleading at the time they are made
- Prepare statement of fiduciary status for distribution to retirement investors, if using streamlined, level fee BIC Exemption
- Provide investment advice that is, at the time of the recommendation, in the best interest of the client
- Provide adequate recordkeeping. Develop process for documenting rationales for investment recommendations, any other options that were considered, and why their compensation is justified
Begin to prepare for Jan. 1, 2018, requirements:
- Multiple disclosure obligations, including material conflicts of interest and third-party payments
- Designate conflicts officer
- Best Interest Contract written contract requirement, in the case of IRAs
- Supplemental documentation requirements for rollover recommendations
- For PTE 84-24 compliance, develop commission information
— Check out FINRA Advances Crackdown on Bad Brokers on ThinkAdvisor.