RIA Compliance and Practice Management Blog

The DOL Fiduciary Rule for RIA Firms: Where it Stands Today

Posted by RIA in a Box

Mar 20, 2017 8:44:59 AM

DOL has delayed the applicability date of the DOL fiduciary rule for RIA firmsAs of today, compliance with the Department of Labor ("DOL") fiduciary rule is still scheduled to be required on April 10, 2017. However, there are a number of recent developments that have already delayed the rule's applicability date in "practice" and more to come shortly that will likely "officially" delay the rule's implementation date. In this latest blog post, we take a look at recent events impacting the rule's future including President Donald Trump's memorandum seeking a review of the rule, a proposal submitted by the DOL to delay the rule's applicability date, and a temporary enforcement policy field assistance bulletin issued by the DOL. Last week, in our latest client webinar on the fiduciary rule, we advised all of our registered investment adviser ("RIA") firm clients to continue to prepare to comply with the rule but to wait to implement any changes until there is more clarity. 


Note: RIA in a Box LLC is not a law firm and does not provide legal advice. We strongly advise that all RIA firms that provide services to individual retirement investors, pension plans, profit sharing plans, and/or retirement plans to consult with a qualified Employee Retirement Income Security Act of 1974 ("ERISA") attorney in matters relating to DOL and ERISA law. This overview is provided for general information purposes only and should not be relied upon to take any action.This post below is as March 20, 2017. As the DOL issues additional guidance, we anticipate additional updates and/or modifications will be made to this solely educational overview. 

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Here is a quick update on the latest fiduciary rule timeline, as of March 20, 2017, as the originally scheduled April 10, 2017 "applicability" date approaches:

  1. On April 14, 2015, the DOL released the proposed rule. 
  2. On April 6, 2016, the DOL released the final rule.
  3. On June 7, 2016, the rule became “effective.” 
  4. On April 10, 2017, the rule is currently scheduled to become “applicable.” 
  5. On January 1, 2017, the rule is currently scheduled to become “fully applicable.” 
  6. On February 3, 2017, President Donald J. Trump issued a memorandum asking the DOL to review the rule.
  7. On March 2, 2017, the DOL submitted a proposal to delay the “applicable” date 60 days to June 9, 2017.
  8. On March 10, 2017, the DOL issued a field assistance bulletin outlining a temporary enforcement policy for the rule.

The presidential memorandum issued on February 3, 2017 outlined the following:

“As part of this examination, you (the Department of Labor) shall prepare an updated economic and legal analysis concerning the likely impact of the Fiduciary Duty Rule, which shall consider, among other things, the following

  • (i) Whether the anticipated applicability of the Fiduciary Duty Rule has harmed or is likely to harm investors due to a reduction of Americans' access to certain retirement savings offerings, retirement product structures, retirement savings information, or related financial advice;
  • (ii) Whether the anticipated applicability of the Fiduciary Duty Rule has resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees; and
  • (iii) Whether the Fiduciary Duty Rule is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.”

On March 2, 2017, the DOL submitted a proposal to delay the "applicable" date of the rule by 60 days to June 9, 2017. Along with the proposal to the delay the rule, the DOL is also looking to issue a new revised rule. While there are a number of moving pieces, here are some of the potential outcomes of the recent actions:

  1. DOL request for delay is denied and becomes applicable on April 10, 2017.*
  2. DOL request for delay is granted and existing rule becomes applicable on June 9, 2017.
  3. DOL request for delay is granted and existing rule becomes applicable at a date after June 9, 2017.
  4. DOL request for delay is granted and a modified rule becomes applicable at a date TBD.
  5. DOL request for delay is granted and the rule is fully revoked.

Presently, most experts believe that the most likely outcomes are #4 or #5. Most believe the 60 day delay of the rule's applicability is quite likely and will be announced by early April. What happens following the likely delay of the rule is hard to predict, but again, most believe that the rule is unlikely to stay in its current form. However, there will be groups in support and opposition of the rule challenging this process so the ultimate outcome is far from certain. While seemingly unlikely at this moment, there is a chance the existing rule could ultimately be implemented.

*In the unlikely event that the DOL decides not to delay the rule's current applicability date, the rule was perhaps already delayed in "practice" due to a field assistance bulletin issued by the DOL on March 10, 2017 outlining a temporary enforcement policy. The bulletin addresses two potential scenarios:

  1. If the new final rule is issued after April 10, 2017, the DOL “will not initiate an enforcement action because an adviser or financial institution did not satisfy conditions of the rule or the PTEs during the ‘gap’ period in which the rule becomes applicable before a delay is implemented.”
  2. If the rule’s applicability date is not ultimately delayed, “the Department will not initiate an enforcement action because on adviser or financial institution, as of the April 10 applicability date of the rule, failed to satisfy the conditions or the PTEs provided that the adviser or financial institution satisfies the applicable conditions of the rule…within a reasonable period after the publication of a decision not to delay the April 10 applicability date.”

However, it is important to highlight that the field assistance bulletin, as it stands right now, only relates to DOL enforcement. The DOL does not speak for other regulators which is relevant since technically the Internal Revenue Service has jurisdiction over the enforcement of the rule as it relates to an individual retirement retirement account ("IRA"). Furthermore, the DOL can not prohibit private litigation.

Lastly,  as RIA compliance consultants, we continue to strongly recommend that all investment advisers make any necessary operational changes in order to qualify the firm to utilize the rule's "Level Fee Exemption" and avoid the more stringent "Best Interest Contract" requirement. We also suggest that all RIA firm principals review our past coverage of the DOL fiduciary rule:

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Lexington Compliance and RIA in a Box LLC are not law firms, investment advisory firms, or CPA firms. Lexington Compliance and RIA in a Box LLC do not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

Topics: RIA Compliance

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