DOL Issues FAQ and Statement on the Impending Fiduciary Rule
Published on June 5th, 2017
In a May 22nd Wall Street Journal op-ed, Department of Labor (DOL) Secretary Acosta confirmed the DOL is moving forward with its new fiduciary standards rule that is to be phased-in from June 9, 2017 through January 1, 2018. During the transition period, the DOL will continue to conduct its ongoing examination of the fiduciary rule, so we expect to see more delays and revisions.
Read more: DOL Fiduciary Rule: Actions in 2017
Fiduciary rule to include HSA investments
The DOL’s new regulations will apply to a broader list of products, one of which is Health Savings Account (HSA) investments. The addition of HSAs is causing confusion and concern across the distribution channel because as of June 9th, all providers of retirement investment advice will become fiduciaries required to meet “impartial conduct standards.”
There will be a period of “compliance assistance,” with emphasis on “assisting” rather than “citing violations and imposing penalties” until at least January 1, 2018 and for some time thereafter. This transition period will provide the HSA industry with the time needed to clarify fiduciary responsibility and establish best practices.
In the op-ed, Sec. Acosta strongly suggested that the DOL will seek further changes to the standards, stating that although, “courts have upheld this rule as consistent with Congress’ delegated authority, the Fiduciary Rule as written may not align with President Trump’s deregulatory goals.”
In addition, this month the DOL issued an FAQ to “provide additional information on the transition period. This guidance, like the Fiduciary Rule and related exemptions, is generally limited to advice concerning investments in IRAs, ERISA-covered plans, and other plans covered by section 4975 of the Internal Revenue Code.” A summary, from that FAQ:
Q. When do firms and their advisers have to comply with the conditions of the new Best Interest Contract (BIC) Exemption and the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (Principal Transactions Exemption)?
A. Firms and their advisers must comply with the exemption conditions after June 9, 2017 if they receive compensation for investment advice in a manner that would violate the prohibited transaction rules that are designed to protect retirement investors from conflicts of interest. Firms and advisers must either structure their compensation arrangements to avoid prohibited transactions or they must comply with an exemption, such as the BIC Exemption or Principal Transactions Exemption.
The DOL has adopted a phased implementation approach to both exemptions. The amended definition of fiduciary advice will first apply on June 9, 2017. On that same date, the BIC Exemption and Principal Transactions Exemption will become available to fiduciary advisers. At the outset, however, and for a transition period extending until January 1, 2018, fewer conditions will apply to financial institutions and advisers that seek to rely upon the exemptions.
During the transition period, financial institutions and advisers must comply with “impartial conduct standards” that protect consumers by ensuring advisers adhere to fiduciary norms and basic standards of fair dealing. The standards specifically require advisers and financial institutions to:
- Give advice that is in the “best interest” of the retirement investor.
- Charge no more than reasonable compensation
- Make no misleading statements about investment transactions, compensation, and conflicts of interest
Without further action from the DOL, the transition period ends on January 1, 2018, and full compliance with all exemption conditions are required for firms and advisers that choose to engage in transactions otherwise prohibited under ERISA and the Internal Revenue Code.
