DOL to Propose Extension of Fiduciary Rule Transition Period
The proposal is expected to delay additional conditions of exemptions from January 1, 2018 to July 1, 2019, but the ultimate length of delay will not be clear until the DOL publishes a final rule.
The US Department of Labor (DOL) has submitted to the Office of Management and Budget (OMB) proposed amendments to extend the transition period of the Best Interest Contract Exemption, Principal Transactions Exemption, and PTE 84-24 (regarding insurance contracts and annuities).
According to a notice filed in one of the pending lawsuits challenging the DOL fiduciary rule and exemptions, the proposed amendments seek to defer the applicability of the full conditions of such exemptions for 18 months until July 1, 2019, but this date is subject to OMB clearance and may be changed before the proposal is officially published in the Federal Register. Moreover, the proposal likely will be subject to a notice and comment period so that interested parties may comment on the merits and length of the delay, as well as to further OMB review of any DOL proposed final rule. Thus, the ultimate length of the delay (if any) will not be clear until the DOL publishes a final rule.
Implications of a Delay
A delay in the applicability of the exemption conditions would provide additional time for the DOL to continue to review the fiduciary rule and exemptions as directed by the president—including consideration of the comments received in connection with other questions in the request for information (RFI)—and make any changes or revisions it deems appropriate.
Moreover, a delay would extend the transition period during which the exemptions require only that fiduciaries provide investment advice that satisfies the impartial conduct standards (i.e., duty of prudence, duty of loyalty, reasonable compensation, and no misleading statements). We note that the DOL has issued two sets of FAQs on the requirements during the transition period. As discussed in our prior coverage of these FAQs, this guidance generally indicates that fiduciaries have flexibility as to how they may demonstrate compliance with the impartial conduct standards, particularly with respect to compensation structures.
What Firms Should Do Now
We strongly encourage interested parties to comment on the proposed amendments to extend the applicability date once they are published. We note that, although the formal comment period for the other sections of the RFI closed on August 7, 2017, the DOL has acknowledged that it will endeavor to consider comments submitted after August 7.
While this latest development is a good sign that there ultimately could be a delay of the additional exemption conditions until July 1, 2019, there is no certainty until a final rule is published in the Federal Register. Until then, the exemptions will continue to reflect the January 1, 2018 applicability date. As such, firms will want to evaluate how best to address this uncertainty in determining their compliance plans.