U.S. Department of Labor’s fiduciary rule
The Department of Labor’s Fiduciary Rule is moving forward
What does this mean, and what is the new timeline requirement?
Two significant and foundational aspects of the Fiduciary Rule became effective on June 9, 2017, specifically the expansion of the definition of “fiduciary” and the duty to comply with the Impartial Conduct Standards (ICS). Although the DOL delayed the implementation of certain conditions for the impacted exemptions — including the new “best interest contract exemption” — until January 1, 2018, the impact of the expansion of who is deemed a fiduciary and the imposition of the ICS needs to be factored into firms’ business plans with this updated schedule. The “liability clock” started ticking on June 9, 2017, even though the DOL itself may not pursue enforcement. The temporary relief from providing clients certain written representations, disclosures and warranties, and the extra time afforded to firms to implement enhanced compensation systems, does not absolve those who will be deemed a fiduciary from the onerous requirements of the ICS, namely that fiduciaries must:1
- Give advice that is in the best interest of the retirement investor; this best interest standard has two chief components, prudence and loyalty:
- Under the prudence standard, the advice must meet a professional standard of care as specified in the text of the exemption.
- Under the loyalty standard, the advice must be based on the interests of the customer, rather than the competing financial interest of the advisor or firm.
- Charge no more than reasonable compensation
- Make no misleading statements about investment transactions, compensation and conflicts of interest
Accordingly, as of June 9, 2017, firms must be ready or “working diligently and in good faith to comply with the fiduciary duty rule and exemptions”2 so that they can demonstrate they are acting in the best interest of their clients, charge no more than reasonable compensation and make no misleading statements.
1“Conflict of Interest FAQs (Transition Period),” DOL website,https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/coi-transition-period.pdf, accessed June 1, 2017.