On April 4, 2017, the U.S. Department of Labor issued a final
rule postponing applicability of the conflict of interest rule and
related exemptions for sixty days, until June 9, 2017. The stated
purpose of the extension is to allow more time to: (i) complete the
examination required by President Trump's February 3, 2017
memorandum, which focuses on the rule's impact on access to
retirement products, advice, and information (see our blog
here); and (ii) consider possible changes with respect to the
conflict of interest rule and related exemptions based on new
evidence or analysis developed pursuant to the examination. The
Department stated that it received 193,000 comment and petition
letters expressing views on whether it should grant the delay. Its
63-page release includes a discussion of the comments and hints of
"a more balanced approach than simply granting a flat delay
and all associated obligations for a protracted period."
In addition to the general 60-day delay, the Department has
delayed most of the requirements for the best interest contract and
other new exemptions through January 1, 2018.
In setting separate applicability dates, the Department
distinguished between (i) the rule on fiduciary status (who is a
fiduciary) and the "Impartial Conduct" standard (acting
in the client's best interest), and (ii) the more onerous
requirements of the various exemptions. The Department hinted that
it might let the rule on fiduciary status and the Impartial Conduct
standard go into effect as early as June 9th. In fact, the
"[T]here is fairly widespread,
although not universal, agreement about the basic Impartial Conduct
Standards, which require advisers to make recommendations that are
in the customer's best interest (i.e., advice that is prudent
and loyal), avoid misleading statements, and charge no more than
reasonable compensation for services (which is already an
obligation under ERISA and the Code, irrespective of this
The Department further stated that it "finds little basis
for concluding that advisers need more time to give advice that is
in the retirement investors' best interest and free from
misrepresentations in exchange for reasonable
In contrast, the Department observed that the onerous
requirements for the various exemptions – including the
"best interest contract," which would create a private
right of action for IRA clients to sue their advisers over prudence
and loyalty – can lead to increased compliance costs in a way
that reduces access to retirement products, advice, and
information. The Department emphasized a "compliance
first" policy, whereby the Department intends to focus more on
assistance in eliminating conflicts and improving compliance more
generally than on citing violations and imposing penalties.
The Department is continuing to accept comments on the substance
of the fiduciary rule and related exemptions: the formal comment
period ends on April 17, 2017, but the Department stated that it
will be open to helpful comments even after that date.
In sum, the message seems to be that the Department is not
leaning toward tossing the rule in its entirety or leaving the
fiduciary standard to the SEC, but it remains open to analysis of
the rule's impact and thoughtful suggestions for how to reduce
conflicts of interest without unduly burdening the retirement
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