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PSCA Executive Reports

April 07, 2017

DOL Releases Final Rule Delaying Fiduciary Rule Applicability Date

On April 4, DOL released for public inspection its final regulation extending the applicability date of the Fiduciary Rule to June 9, 2017 as well as providing additional transition relief through the end of the year (the “Final Extension”).  Below we describe the key issues addressed in the Final Extension.

  • June 9, 2017 Applicability Date:  Under the Final Extension, the applicability date of the Fiduciary Rule (i.e., the definition and exemptions) has been extended by 60 days -- from April 10, 2017 until June 9, 2017. 
  • Relief Conditioned on “Impartial Conduct Standards.”  The conditions for exemptive relief during a new Transition Period (from June 9, 2017 through December 31, 2017) are amended for the Best Interest Contract Exemption (“BIC”) and Principal Transaction Exemption (respectively, PTEs 20116-01 and 2016-02).  From June 9, 2017 through December 31, 2017, the sole condition for relief will be adherence to the “Impartial Conduct Standards.” Each of the remaining conditions for exemptive relief during the Transition Period is eliminated, including the transition notice.  There is neither an explicit recordkeeping requirement nor a need to designate a BIC compliance office or officers during the Transition Period, but many financial institutions are likely to voluntarily adopt recordkeeping and monitoring procedures.  Importantly, the written disclosure requiring acknowledgement of fiduciary status, disclosure of limitations placed on the universe of recommendations, and disclosures of Material Conflicts of Interest are no longer required during this Transition Period. 
  • Robo Relief.  Transition period relief is unavailable to Robo-advisers. However, DOL has effectively conformed the conditions of PTE 2016-01 section II(h) “level fee” relief to the new conditions applicable during the Transition Period for Robo-advisers by requiring only compliance with the Impartial Conduct Standards and not the written acknowledgement of fiduciary status condition. 
  • Continued Availability of PTE 84-24 for Variable Annuities and Fixed Indexed Annuities.  The applicability date for PTE 84-24 has been moved back to January 1, 2018 for everything except the application of the Impartial Conduct Standards.  This means that for the remainder of 2017, PTE 84-24 can be used to cover the sale of fixed indexed and variable annuities.  Likewise, the narrowed scope of relief to Insurance Commissions and Mutual Fund Commissions also does not go into effect until 2018.  This will be welcome relief for those in the annuity business. 
  • Other Exemptions. The effective date for the changes to PTE 75-1, 77-4, 80-83, 83-1, and 86-128 will be June 9th.  The relief previously offered by these class exemptions will be significantly curtailed in some instances.   
  • No Change in Duration of Transition Period.  The Transition Period for the Fiduciary Rule continues to sunset as of January 1, 2018.

Although many commentators had hoped for a longer delay or, at a minimum, a series of delays, DOL signaled that there will be no further delays of the new June 9, 2017 applicability date, and that DOL will instead use the time available in the remainder of 2017 to complete the updated legal and economic analysis as instructed by President Trump’s memorandum of February 3, 2017 (the “President’s Memorandum”) for the full compliance period beginning January 1, 2018. In the preamble, DOL states:

“Under this final rule extending the applicability dates, stakeholders can plan on and prepare for compliance with the Fiduciary Ruleand the PTEs’ Impartial Conduct Standards beginning June 9, 2017. At the same time, stakeholders will be assured that they will notbe subject to the other exemption conditions in the BIC Exemption and the Principal Transactions Exemption until at least January 1,2018. The Department will aim to complete its review pursuant to the President’s Memorandum as soon as possible before that dateand announce its intention on whether to propose changes to the Rule or PTEs, provide additional relief, or to allow all the conditionsof the PTEs to become applicable as scheduled on January 1, 2018.” 

It remains to be seen whether the DOL’s position on the Fiduciary Rule will change once the new Trump Administration political appointees, most notably Secretary-designate Alexander Acosta, are in place.

There also continue to be Fiduciary Rule developments in the courts.  To date, all of the courts considering challenges to the Fiduciary Rule have ruled in support of the DOL.  For example, a federal judge for the U.S. District Court for the Northern District of Texas denied a motion by the Chamber of Commerce, SIFMA, and the Financial Services Institute for an injunction to stop the Fiduciary Rule from going into effect.  The court said the plaintiffs failed to meet the standard for emergency injunctive relief. The plaintiffs have indicated they plan to appeal.


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