United States: Quoth The DOL, ‘Nevermore'? Delays Fiduciary Rule Until June – But Isn't Raven About Future Action

On April 4, 2017, the Federal Register posted a notice of delay of 60 days by the U.S. Department of Labor (the "Department") of the first scheduled applicability date for the so-called investment advice "fiduciary" (or conflict of interest) rule (the "Fiduciary Rule") under the Employee Retirement Incomes Security Act of 1974, as amended ("ERISA"), originally scheduled for April 10, 2017. The revised first "applicability date" will now be June 9, 2017. For more information about the Fiduciary Rule and the delay process, please see our prior Stroock Special Bulletins.1 The January 1, 2018 "applicability date" remains unchanged. The Fiduciary Rule would have impact for many accounts subject to Title I of ERISA and other arrangements subject to similar provisions of the Internal Revenue Code of 1986, as amended ("Code").

Separately, President Trump previously sent a number of questions by memorandum to the Department concerning the Fiduciary Rule, for which the Department has sought additional input from commentators. That comment period remains open and the questions remain under consideration. Many of those questions would appear to address fundamental issues of law and policy.

The following are three points worth highlighting:

1. As mentioned above, this notice technically extends the first scheduled applicability date (i.e., April 10, 2017) only to June 9, 2017.

Those market participants concerned about becoming investment advice fiduciaries under the Fiduciary Rule who choose to utilize the Best Interest Contract ("BIC") Exemption (and other exemptions, including Prohibited Transaction Class Exemptions ("PTCE") such as PTCE 77-4, PTCE 86-128, and PTCE 84-24), would need to adhere to the Impartial Conduct Standards (including the "best interest" standard) beginning on June 9. On January 1, 2018, all other conditions of the BIC Exemption (and all other exemptions that are part of this regime) would become applicable. Availability of PTCE 86-128 may also become limited for non-discretionary IRAs as of June 9.

Given the breadth of the definition, those who believed it necessary to take steps to assure compliance with one or more of the rule's exceptions will need to be aware that the rule is still slated to take effect on June 9. Thus, even market participants who deal with the institutional plan market or who find themselves interacting with institutions that will be deemed to be fiduciaries as of June 9, will likely wish to continue to pay attention to developments.

In an apparent nod to those feverishly working to meet the demands of the April 10 deadline, transition and other disclosure notices and acknowledgment of fiduciary status that may have otherwise been required under the BIC Exemption by April 10, 2017 will not be due until January 1, 2018.

2. The comment period occasioned by the President's substantive questions in his February 3 memorandum is still outstanding until April 17, 2017. What time frame will be needed to assess those comments and, then, to answer the questions posed by the President, remains an open question. Further, the Department appeared to signal that no further delays are planned.

Market participants may wish to pay particular attention to the Department's indication that "the new exemptions and amendments to previously granted exemptions should become applicable on June 9, 2017, so that retirement investors will be protected during the period in which the Department conducts its examination of the Fiduciary Rule." Indeed, although this is not necessarily outcome determinative of further developments, the Department noted that it had "concluded that it would be inappropriate to broadly delay application of the [Fiduciary Rule] definition and Impartial Conduct Standards for an extended period in disregard of its previous findings of ongoing injury to retirement investors."

Of course, although we cannot pretend to understand the Department's motives, this posture runs the risk of portraying those seeking any further delay as if they were somehow against acting in their clients' own best interests. We believe that perception would miss a very fundamental point by conflating the application of a "best interest" standard with the application of a new investment advice ERISA fiduciary standard. The latter, of course, is so broad that it would now cover many traditional sales and investment education interactions that most would not regard as "investment advice" in the objective sense. Thus, the potential implication is that the focus no longer need be on the four corners of the new definition itself which, of course, is central to the inquiry, and may even be argued to run contrary to the President's memorandum.

3. Currently, a new Secretary of Labor has not yet been confirmed. Obviously, changes in the "chain of command" at the Department may have ongoing impacts in how the Department responds to the President's questions and assesses the various questions of policy and law involved, including those discussed above.

We will continue to monitor developments for our clients and friends.


1. "Will Time Derail 'Fiduciary' Delay's Arrival? DOL FABulously Pledges to 'Mind the Gap' on Enforcement," March 13, 2017, available at http://www.stroock.com/publications/will-time-derail-fiduciary-delays-arrival; "It's About Time! DOL Proposes Delay of Fiduciary Rule," March 2, 2017, available at http://www.stroock.com/publications/its-about-time-dol-proposes-delay-of-fiduciary-rule; "President Trump Signs Executive Order on Financial Regulation," February 7, 2017, available at http://www.stroock.com/publications/president-trump-signs-executive-order-on-financial-regulation; "DOL Fiduciary and the Super Bowl: No Delay of Game (Yet) and Overtime Possible," February 6, 2017, available at http://www.stroock.com/publications/dol-fiduciary-and-yesterdays-super-bowl-no-delay-of-game-yet-and-overtime-possible; "Final Fiduciary Rule Means ERISky Business: Will BICkering Follow?" April 19, 2016, available at http://www.stroock.com/publications/final-fiduciary-rule-means-erisky-business-will-bickering-follow.

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