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The Department of Labor in a brief filed in a Minnesota lawsuit on August 9, 2017 revealed that DOL had submitted to the Office of Management and Budget a proposal to delay the implementation of remaining parts of the DOL fiduciary rule from Jan. 1, 2018, until July 1, 2019.  This would delay the implementation of the BICE and BICE Lite procedures that will cause serious adjustments to most advisers’ business model and procedures.  The postponement of the effective date is not official yet, as it has to be approved by the Office of Management and Budget —a process that can take as long as 90 days.

Background on the DOL Fiduciary Rule

The Department of Labor (DOL) Fiduciary Rule is a new regulation that expands the “investment advice fiduciary” definition under the Employee Retirement Income Security Act of 1974 (ERISA).  It essentially elevates all financial professionals who work with retirement plans or provide retirement planning advice to the level of a fiduciary.  For investment advisers, the rule imposes significant burdens on advisers that receive other than asset based fees (level-fee fiduciary).  These advisers will have to comply with the Best Interest Contract Exemption (BICE), which will require significant revisions to procedures, contracts, and websites.  Advisers who are asset based/level fee advisers may rely on BICE Lite, which is much less burdensome for advice related to IRA, 401(K) and other ERISA plans.  The problem for many advisers is that not only do trailing and 12b-1 fees disqualify them from the BICE Lite exemption, but the use of soft dollars and the receipt of solicitation fees will also move the adviser into full BICE compliance.  Full implementation of the DOL fiduciary rule is currently scheduled for January 1, 2018.  However, this date will be moved until July 1, 2019, if OMB approves the latest delay.

Two provisions of the DOL Fiduciary rule were effective June 9, 2017.  The first provision expands the definition of a fiduciary by including financial advisers to client retirement accounts (this does not really change the law as to investment advisors). The second provision establishes impartial conduct standards, including:

  • Any recommendation must be in the best interest of the investor, meaning that it must be based on the investor’s investment objectives, risk tolerance, and financial circumstances (and not financial considerations of the fiduciary);
  • A fiduciary must not make misleading statements about investment transactions, compensation, or conflicts of interest; and
  • A fiduciary may not charge more than a reasonable amount for services.

However, until the full rule is effective, investment advisers can still receive commissions, trailing, revenue sharing and other transaction based fees without complying with the BICE procedures.  Advisers may also take comfort from the fact that DOL has indicated that it will not enforce any parts of the DOL Fiduciary rule until January 1, 2018.

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