Acosta and New DOL FAQs Confirm: Fiduciary Standard Will Take Effect June 9, But Expect Changes to the DOL Rule Before January 1, 2018

On May 22, 2017, new DOL Secretary Alexander Acosta published an Op-Ed piece in the Wall Street Journal (found here; a subscription to the Journal is required to access the piece), confirming that, as we previously suspected, the DOL will allow the fiduciary standard for retirement advice to take effect on June 9. (Our previous blog post discussing the delay to June 9 is here.)

In his piece, Acosta sounds, at best, skeptical about the Rule. He writes, “the Fiduciary Rule as written may not align with President Trump’s deregulatory goals. This administration presumes that Americans can be trusted to decide for themselves what is best for them.” However, Acosta concedes that the DOL has “found no principled legal basis to change the June 9 [applicability] date while we seek public input.”

Acosta advises that the DOL will seek additional public input on the entire Fiduciary Duty Rule and on “how to revise this rule.” Acosta explicitly hopes that the SEC will be a “full participant” in revising the Rule as the SEC has “critical expertise in this area.” (Our previous blog post discussing the interplay between the DOL and the SEC in considering a fiduciary standard is here.)

So, that means on June 9, the Fiduciary Duty Rule will go into partial effect. Persons who make recommendations to retirement investors will be considered fiduciaries. Full implementation is currently scheduled for January 1, 2018, but, given Acosta’s comments, it seems clear that further (and probably significant) changes will be made before then.

The DOL also issued new Conflict of Interest FAQS last week, further explaining what firms and advisers must do during the transition period from June 9, 2017 to January 1, 2018. (The FAQs can be found here.)

  • Firms and advisers advising retirement investors must comply with an exemption (such as the BICE or PTE 84-24) after June 9 if they receive compensation for investment advice that varies based upon the transaction or product sold.
  • The BICE will be less onerous during the transition period. To rely on the BICE during the transition period, firms and advisers need only comply with the “Impartial Conduct Standards,” which are: (i) give advice that is in the “best interest” of the retirement investor (meaning advice that is prudent and loyal); (ii) charge no more than reasonable compensation; and (iii) make no misleading statements about investment transactions, compensation, and conflicts of interest. The other BICE conditions, including the requirement to execute a contract with the customer containing certain enforceable promises, making certain specified disclosures, and implementing certain policies and procedures, will not be required during the transition period.
  • Also, during the transition period, firms and advisers may continue to rely on PTE 84-24 for all annuity contracts, except that they must also comply with the Impartial Conduct Standards.
  • The DOL again cautioned that it “expects financial institutions to adopt such policies and procedures as they reasonably conclude are necessary to ensure that advisers comply with the Impartial Conduct Standards.” However, the DOL specified that it “does not require firms and advisers to give their customers a warranty regarding their adoption of specific best interest policies and procedures, nor does it insist that they adhere to all of the specific provisions of [the BICE].” FAQs at p. 5.

The FAQs reaffirm that, during the transition period, “even if a fiduciary adviser recommends proprietary products or investments that generate commissions or other payments that vary with the investment recommended, the adviser can meet the impartial conduct standards by ensuring that the recommendations are prudent; the investment advice is based upon the customer’s financial interests, rather than the adviser’s competing financial interests in the transaction; the communications are free from material misrepresentations; and the associated fees and charges are reasonable.” FAQs at p. 5.

Consistent with Acosta’s Op-Ed piece, the FAQs state that the DOL intends to issue a Request for Information soon for additional public input on the Rule and its exemptions, including whether an additional delay to the full implementation date is prudent.

Finally, the DOL attempts to reassure firms and advisers that it will work together with them “to help them come into compliance with the Fiduciary Rule” and that its focus will be “marked by an emphasis on compliance assistance (rather than citing violations and imposing penalties).” FAQs at p. 10. The DOL states that it is issuing “a new temporary enforcement policy for the transition period, under which the Department will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions.” FAQs at pp. 10-11.

Some insiders in the financial markets are taking comfort from the DOL’s assurances that it will work with firms and advisers to assist in achieving compliance rather than to punish good faith efforts that may nevertheless fall short. Others, however, have said that they are reminded of President Reagan’s famous quote that “the nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.’”

About Julie Firestone

Julie Firestone is a member of Briggs and Morgan's Business Litigation Section and the Financial Markets Group. Julie practices primarily in the following areas: complex commercial disputes and class actions; securities litigation and arbitration; SEC and FINRA regulatory investigation and enforcement; and shareholder and partnership disputes. Julie represents corporations, investment firms, broker-dealers, insurance companies, issuers of securities, registered representatives and insurance agents in class actions, regulatory proceedings and other adversary matters. She also focuses on customer complaints and regulatory compliance, as well as customer disputes in arbitration. Julie’s legal experience includes matters involving securities fraud, breach of contract, common law fraud, RICO, breach of fiduciary duty, suitability, selling away and unauthorized trading.
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