The Department of Labor (“DOL”) will begin enforcing the fiduciary rule in just 2 weeks- April 10. Here is what you need to know.
Summary of the Changes
The new rules modify the regulation of conflicts of interest in the market for retirement investment advice, and consist of: 1) a new definition of “fiduciary” under ERISA and the Internal Revenue Code (the “Code”); 2) an amendment to, and partial revocation of, PTE 84-24; and 3) the creation of the Best Interest Contract Exemption (“BICE”). The first rule revises the definition of “fiduciary” under ERISA and the Code, and eliminates the condition that investment advice must be provided “on a regular basis” to trigger fiduciary duties. The second rule amends PTE 84-24, which provides exemptive relief to fiduciaries who receive third party compensation for transactions involving an ERISA plan or individual retirement account (“IRA”).4 The DOL excluded those selling fixed indexed annuities (“FIAs”) as eligible for exemptions under amended PTE 84-24. The third rule, BICE, creates a new exemption for FIAs and variable annuities, and allows fiduciaries to receive commissions on the sale of such annuities only if they adhere to certain conditions, including signing a written contract with the consumer that contains enumerated provisions.
- On February 3, 2017, President Trump signed a Presidential Memorandum directing the DOL to examine the Fiduciary Duty Rule and whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.
- On February 8, 2017, the US District Court for the Northern District of Texas denied summary judgement to the plaintiffs in Chamber of Commerce of the U.S.A., et al. vs. DOL. The Plaintiffs sought to have the Court vacate the fiduciary rule for being overly burdensome and improperly treating financial professionals as fiduciaries in one-time transactions. The Court upheld the rule.
- On March 1, 2017, the DOL announced a proposed extension of the applicability dates of the rule and related exemptions from April 10 to June 9, 2017.
What Should You Do?
The fiduciary rule, as of today, has not been postponed, revoked or modified. With such little time left before the rule goes into effect, you should be reviewing your policies and procedures, fee structures and talking to your financial professionals to ensure that your business will be ready. Contact us today to help you prepare for the rule.