DOL Rule Extension to Overlap with SEC Consideration of Fiduciary Standards

Following the Department of Labor’s November 27, 2017 announcement of an 18-month extension to the existing Fiduciary Rule transition period, the industry will enter a period of further study for proper standards for disclosure or elimination of conflicted compensation arrangements. That’s a mouthful right there.

The Obama administration’s March 31, 2017 implementation of various new prohibited transaction exemptions (PTE’s), including BIC and principal transaction exemptions, never made the finish line. Partial implementation of the rule, with implementation of impartial conduct standards, on June 9, 2017, helped the Trump Administration-led DOL delay the full measure of BIC and other PTEs until January 1, 2018.

The DOL’s November 27 announcement means we now wait until July 1, 2019 for further implementation. Chairman Jay Clayton meanwhile has the SEC’s team on track for fiduciary standard rule-making. The DOL rule cast a wide net by adding every recommendation made to an IRA or ERISA qualified account. The SEC may focus more specifically on retail clients, which the SEC has been identifying as a rule-making and examination priority. Yes, clearly there is overlap with the challenge remaining how to disclose all compensation received for financial advice and securities product sales and marketing in the retail and/or retirement asset markets.

A closing reminder that the DOL process for fiduciary standard reform started about a decade ago. It should be no surprise that this will take a long time. In the meantime, under the DOL Rule, advice to IRA account holders and qualified ERISA plans should be according to a best interest standard. Advisers should document advice and why it is in the client’s best interest in situations such as providing a recommendation to roll over assets into IRAs.

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