Fiduciary (Retirement Accounts)

DOL Update, October 2017

The DOL’s fiduciary rule is partially final now, with the remaining portions of the rule originally scheduled to go into effect on January 1, 2018. However, the DOL has a pending request to delay that date from January 2018 to July 2019.
 
The final rule expands the definition of a fiduciary advisor, allows commission-type advisor compensation only if certain “exemptions” are satisfied, and puts additional data retention and web disclosures on the financial institutions, such as the broker-dealers and the insurance providers.
 
The exemptions are very onerous, requiring a contract between the client and the financial institution, which created a “private right of action” for the retirement savers.  It is important to remember that the DOL rule impacts primarily retirement plans and IRAs –but not other investment accounts.  This private right of action also would have permitted class action lawsuits even if arbitration was part of the agreement.
 
The onerous contract, class action lawsuit exposure, and other disclosures are parts of the rule expected to be final on January 1, 2018. However, the Department of Labor has requested a delay of those portions of the rule until July 2019, and we expect that request to become a final delay by early November.
 
The reason for the delay is that the Department has been instructed by the White House to conduct a new review of the rule to determine if there is any market disruption, lack of access to advice, products and services, increased costs to consumers or increased litigation risk.  If ANY of these are determined to exist following the completed review, the White House has instructed the Department to rescind or revise the rule.
 
The Department has noted that it is now working with the SEC, and that it expects significant revisions to the rule before the July 2019 date – and in fact, NAIFA believes that due to the many needed revisions, the July 2019 date is likely to be further extended and we will see a new proposed rule during that interim.
 
Additionally, the litigation brought against the DOL by ACLI, NAIFA and the US Chamber may be decided in the near future, although no one is able to predict whether that decision will be favorable to us.
 
In the meantime, the part of the rule that is final is important to understand.
 
The new definition of fiduciary says that any advice for a fee is fiduciary advice.
 
The rule has an impartial conduct standard that must be satisfied in all instances.  The impartial conduct standard requires that advice be in the best interest of the client.  There can be no misleading statements.  Advisor compensation cannot be more than reasonable. 
 
Each broker-dealer and insurance provider will have their own requirements as well, so be certain you know when you are working with a prospect or client subject to the DOL rule, and be sure you know what the financial institutions involved require of you.
 
The SEC is also looking at writing a “best interest standard” for broker-dealers and their registered representatives, but the SEC rule cannot stop the DOL from proceeding with its rulemaking.  However, because both agencies have new Secretaries as a result of the change in the administration, there is some hope that all future efforts will be more coordinated to assure consistency and lack of unnecessary confusion.
 
There is legislation pending in the House, but it is not expected to be picked up by the Senate. 
 
NAIFA National will continue to work with lawmakers and with the regulators, especially the new team at the Department of Labor, to assure that any revisions are simple, easily complied with and that consumers continue to have access to affordable services and products, and choices in how those products and services are paid for.

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