DOL Delays Key Investment Fiduciary Requirements to Mid-2019

A much-anticipated extension of the current transition period for Department of Labor (DOL) investment fiduciary guidance has been announced. According to a DOL news release, the applicability date of several key elements of the guidance has been extended from January 1, 2018, to July 1, 2019. The additional 18-month transition period specifically applies to the controversial Best Interest Contract (BIC) exemption, to the “principal transactions” exemption for asset transactions between investment fiduciaries and employee benefit plans (including IRAs), and to certain proposed restrictions on annuities offered as retirement investments.

What Is Delayed?

Those who provide retirement investment advice in return for compensation generally are considered fiduciaries, with the potential obligations and liabilities that may entail. The DOL’s fiduciary investment advice regulations and exemptions, initially finalized in 2016, provided a roadmap for investment advice providers to comply with their fiduciary obligations.

These regulations have been considered technically in force as of June 9, 2017, but for all intents and purposes those subject to the requirements have been able to conduct business under much-relaxed DOL compliance standards. Specifically, the need to comply with several prohibited transaction exemptions (PTEs) has been delayed. Perhaps most notable, the requirement that investment advice providers enter into enforceable contracts with certain investors—the Best Interest Contract (BIC)—has not been required during the transition period, now extended from January 1, 2018, to July 1, 2019.

What Is Effective Now?

During the transition period, now up to July 1, 2019, those who provide retirement investment advice are required only to comply with the following Impartial Conduct Standards.

  • Charge no more than a reasonable amount for investment advisory services
  • Avoid making misleading statements
  • Make only recommendations that are in the client’s best interest

Unfortunately, these requirements are subjective and offer no bright lines for determining such things as “reasonable” or “best interest.” In addition, as the DOL noted in announcing the initial transition period (to January 1, 2018), the agency does not intend to punish fiduciaries “working diligently and in good faith” to comply. The DOL also noted in the announcement that the IRS would not assess excise taxes (for prohibited transactions) in situations where the DOL’s relaxed enforcement policy is being applied. It is expected that this understanding will continue to apply during the now-extended transition period ending July 1, 2019.

Future Is Unclear Under Trump Administration

The endgame for the DOL fiduciary investment advice guidance, which was the product of a more aggressive compliance philosophy under the prior presidential administration, is unclear. Earlier in 2017, President Trump issued Executive Order 13777, reflecting the intent to “reduce the regulatory burdens agencies place on the American people,” and directing federal agencies to evaluate existing regulations and make recommendations regarding those that can be repealed, replaced, or modified to make them less burdensome.

Whether the DOL investment fiduciary final regulations and accompanying exemptions will someday take full effect as they now exist is, at best, uncertain. Watch this Ascensus.com News for further developments.