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Volume XII, Number 146

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DOL Seeks Additional Comments on Fiduciary Rule

The US Department of Labor (DOL) released its “Request for Information Regarding the Fiduciary Rule and Prohibited Transaction Exemptions” on June 29. Highlights from the RFI include the following:

  • Potential delay of January 1 compliance date. The DOL requests comments on whether to extend the transition period by delaying the applicability of certain conditions of the exemptions beyond January 1, 2018. Comments on the delay are due 15 days after the RFI is published in the Federal Register. We expect that the RFI likely will be published on July 5—which would mean a July 20 deadline.

  • Focus on clean shares, T-shares and fee-based annuities. As expected, the RFI includes a number of questions about clean shares, T-shares, and other “innovations” such as fee-based annuities. The DOL further requests input on the possibility of developing a “streamlined exemption” based on these approaches.

  • Coordination with other regulators, including the SEC. Indicating its previously expressed desire to better coordinate the rule with other financial services regulators, including the US Securities and Exchange Commission (SEC), the DOL asks several questions about current and potential new standards that apply to retail investment advice, including the following:

  • Costs and benefits of going beyond the impartial conduct standards. Noting that only the impartial conduct standards (duty of care, duty of loyalty, reasonable compensation, and no misleading statements) apply during the transition period, the DOL asks about the costs and benefits of allowing the additional exemption conditions to become applicable on January 1. In particular, noting the litigation risks, the DOL queries whether the contract and warranty requirements could be eliminated or changed, and what impact doing so would have on compliance with the impartial conduct standards.

  • Expanding the Principal Transactions Exemption. The DOL asks whether expanding or revising the Principal Transactions Exemption would better serve investors and provide market flexibility. We note that many have raised concerns about the impact the restrictions on eligible assets have had on investor choice—particularly with respect to IPOs, underwritings, and structured products. 

  • Relief for bank deposits. The DOL is considering whether issues with bank deposit IRAs and HSAs can be better addressed through a change to the rule or a streamlined exemption.

  • Model disclosures and policies and procedures. The DOL seeks input on its potentially developing model disclosures and policies and procedures.

  • Changes to the definition of fiduciary investment advice. The DOL appears to be considering changes to the definition of fiduciary investment advice that could potentially narrow its scope, including expanding the exception for communications with independent fiduciaries with financial expertise and carving out communications about increasing contributions to plans and IRAs.

The comment period for issues other than the delay is 30 days (ending on approximately August 4). We encourage interested parties to comment on these topics and the other issues the DOL raises in the RFI.

Copyright © 2022 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume VII, Number 186
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About this Author

Daniel Kleinman, Morgan Lewis, Labor and employment lawyer
Partner

Daniel R. Kleinman advises businesses on the fiduciary responsibilities provisions (Title I) of the Employee Retirement Income Security Act (ERISA). He also counsels these clients on related tax, corporate, and securities laws in connection with the structuring and marketing of investment products (including private equity and hedge funds) and financial services to employee benefits plans. Additionally, Daniel handles issues related to the regulation of broker-dealers and investment advisers under US federal and state securities laws.

202-739-5143
Michael Richman, Employment attorney, Morgan Lewis
Partner

Michael B. Richman counsels clients on the fiduciary responsibility rules under the Employee Retirement Income Security Act (ERISA), including the ERISA prohibited transaction rules. He advises plan sponsors on investment matters for defined benefit and defined contribution plans. He also counsels banks, investment adviser firms, and broker-dealer firms on ERISA compliance for ERISA plan separately-managed accounts, collective investment funds, private funds, and other arrangements. Additionally, he provides guidance to IRA custodians on permissible IRA investments and...

202-739-5036
Lindsay Jackson, Morgan Lewis, Employment attorney
Partner

Lindsay B. Jackson counsels financial services clients on issues that arise under the Employee Retirement Income Security Act (ERISA) fiduciary responsibility and prohibited transaction rules. Clients turn to her for guidance on ERISA and IRC compliance when providing services to plans and IRAs. Lindsay also negotiates private fund investments and other service provider agreements on behalf of plans and plan asset entities. She advises clients involved in US Department of Labor and SEC examinations and investigations.

202-739-5120
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