June 20, 2021

Volume XI, Number 171


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Department of Labor Finalizes 18-Month Extension for Simplified Compliance With the BIC Exemption Under the ERISA Fiduciary Advice Rule

On November 29, the US Department of Labor (DOL) finalized its 18-month extension of the transition period under the Best Interest Contract Exemption (the "BIC Exemption").1 As described in our earlier advisory, "Compliance With the ERISA Fiduciary Advice Rule for Private Investment Fund Managers and Sponsors and Managed Account Advisers: Beginning June 9, 2017," the BIC Exemption permits the giving of advice and receipt of compensation for such advice by an investment advice fiduciary when dealing with a retirement investor (such as an IRA, small ERISA plan, or individual participants in ERISA plans) that is not represented by an "independent fiduciary."

In April of this year, the DOL limited the requirements of the BIC Exemption to require compliance only with its "impartial conduct standards" (ICS) for the period from June 9, through December 31. In August of this year, the DOL proposed a further delay of the full implementation of the BIC Exemptions from January 1, 2018 until July 1, 2019. Pursuant to the extension, fiduciaries relying on the BIC Exemption are required to comply only with the ICS through July 1, 2019. 2

As described in our earlier advisory, "Sign of Future Changes? DOL Proposes 18-Month Extension of Transition Period for Compliance With ERISA "Fiduciary Investment Advice" Rule," compliance with the ICS generally requires that an investment advice fiduciary (1) act in the "best interest" of plan participants and IRA owners; (2) receive no more than "reasonable compensation" (as defined under ERISA and the Internal Revenue Code); and(3) make no materially misleading statements about recommended transactions, fees, compensation and conflicts of interest.

The DOL indicated that the extension will give it time to consider public comments submitted pursuant to its earlier Request for Information on the Fiduciary Rule, and to consider potential input from the Securities and Exchange Commission and certain other regulators.

Notwithstanding the delay in the full implementation of the BIC Exemption, the extension states that the DOL expects financial institutions and advisers to adopt supervisory mechanisms to prevent violations of the ICS, exercise care in their communications to retirement investors and accurately describe recommended transactions and compensation practices.

In connection with the extension, the DOL also announced that it will extend the temporary enforcement relief provided under Field Assistance Bulletin 2017-02 until July 1, 2019. Under the enforcement policy, the DOL provided that it will not seek enforcement action against investment advice fiduciaries who are "working diligently and in good faith to comply with their fiduciary duties and to meet the conditions of the PTEs."

In light of the extension, and the uncertainty as to what will ultimately become of the Fiduciary Rule and the related Exemptions, financial institutions and advisers that intend to rely on the BIC Exemption may wish to review their policies and procedures for complying with the conditions of the ICS.

1 The extension also applies to the Principal Transaction Exemption and to certain amendments to Prohibited Transaction Exemption 84-24.

2 Following the conclusion of the 18-month transition period, the other conditions of the BIC Exemption will become operative and, as currently drafted, include: that financial institutions enter into written contracts with retirement investors which acknowledge fiduciary status and contain an obligation to adhere to the ICS; disclosure of fees, services and conflicts of interest; the adoption of policies and procedures designed to ensure compliance with the ICS, including policies designed to ensure that compensation practices do not incentivize advisers to make recommendations that are not in the best interest of retirement investors; and the maintenance of a website containing other specified information.

©2021 Katten Muchin Rosenman LLPNational Law Review, Volume VII, Number 334



About this Author

Henry Bregstein, Katten Muchin Law Firm, Financial Institutions Legal Specialist

Henry Bregstein is the global co-chair of the firm’s Financial Services practice and a member of the firm’s Executive Committee and Board of Directors. In his role as partner in the Financial Services practice, he advises banks, domestic and offshore hedge funds, private equity funds, life insurance companies, family offices, sovereign wealth funds, investment advisers and broker-dealers on regulatory, securities, tax, finance, licensing, corporate and other legal matters.

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Wendy E. Cohen, Financial Services Lawyer, Katten Muchin Law firm

Wendy E. Cohen represents investment managers and other sponsors of domestic and offshore securities and commodities hedge funds, funds of funds and other public and private pooled investment vehicles, as well as their service providers, including their managers, brokers, financial intermediaries and other financial institutions, and investment professionals. She provides advice on all corporate and related matters facing investment funds, including structure and organization, ongoing operations, restructuring and dissolution.

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David Y. Dickstein, Financial Services Lawyer, Katten muchin law firm

David Dickstein represents broker-dealers, investment advisers, investment companies and hedge funds in connection with a variety of regulatory, compliance and operational matters. David regularly counsels investment advisers on registration and regulatory matters, such as the need for registration, conflict of interest disclosures, soft dollars and best execution, firm advertising and marketing, federal and state pay-to-play matters, trade allocations and personal trading. He also advises broker-dealers on registration and ongoing compliance matters, mutual fund supermarkets...

Jack P. Governale, Katten Muchin Law Firm, Financial Services Attorney

Jack P. Governale is the head of Katten’s New York Financial Services practice. Jack is a Registered Foreign Lawyer and a non-practicing partner in Katten Muchin Rosenman UK LLP. He concentrates his practice in the area of investment management, representing domestic and offshore private investment funds and their managers, as well as investment advisers, commodity pool operators, and commodity trading advisors.

Jack advises his fund and investment manager clients on a broad range of securities and futures regulatory matters arising under the Securities Act, the...

Christian B. Hennion, Finance Attorney, Katten Muchin Law Firm

Christian B. Hennion concentrates his practice in financial services and asset management matters, including counseling fund managers, registered investment advisers and commodity trading advisors on both transactional and regulatory matters. Chris has advised a wide range of US and international managers, from start-ups to large institutions, regarding a variety of matters, including private fund launches and reorganizations, advisory engagements, Investment Advisers Act and Commodity Exchange Act compliance obligations, Securities and Exchange Commission (SEC) and Commodity Futures...