United States: The DOL Fiduciary Rule: Charting A Course, Avoiding Collisions & Potential Litigation Q&A #4

Last Updated: December 7 2017
Article by James F. Jorden

For the past several months, we have written about potential litigation issues under the "revised temporary" DOL Rule involving the offer and sale of annuities in the IRA market. This article continues that discussion. Recall that while the Rule's revised broad definition of "fiduciary" was adopted effective June 9, 2017, the Rule's exemptions were made available for a temporary transition period, by adherence only to the Rule's Impartial Conduct Standards. As in the past, the answers below are limited to the Rule's impact during this "temporary" period. In particular this Q&A addresses issues raised in the Department's recent release which provides for an 18-month Extension of Transition Period and Delay of Applicability Dates for the Best Interest Contract Exemption; the Class Exemption for Principal Transactions; and PTE 84-24 ("Release") (29 CFR Part 2550, 11/29/17) .

In particular, we focus on the issues the Department (and consumer groups) raised regarding the status of "enforcement" procedures during the transition period, with an emphasis on the comments in the Release on potential implications for both regulatory enforcement and litigation during this period and beyond. In last month's Q&As we also suggested some measures to protect against exposure in connection with advising on or effecting a transaction involving advice on IRA purchases or distributions from an ERISA plan to an IRA. We now focus on recent comments from the Department that may be relevant to that analysis. The issues we have been discussing relate primarily to potential litigation involving the sale of annuities to IRAs or advice regarding such a sale. Such litigation, during this transition period can only be brought, if at all, as state law claims (presumably under a state law fiduciary standard) because ERISA does not provide a cause of action for breach of an alleged fiduciary duty unless the advice or sale is to an ERISA qualified plan. However, in this discussion, we will address the IRA only transactions as well as potential litigation in federal court when advice or sales are made to ERISA plans.

Q. Has the Department revised or provided additional direction in the Release regarding its "enforcement" position during this temporary transitional period?

A. Yes, in several respects; first, early in the Release, the Department notes that the primary reason for the comment letters opposing the proposed delay was that investors would be harmed because "there would not be any meaningful enforcement mechanism in the PTE's without the contract, warranty, disclosure and other enforcement and accountability conditions."1 The same commenters urged that the Department "at a bare minimum, should add the specific disclosure and representation of fiduciary compliance conditions originally required for transition relief."2

Q. How did the Department respond to these criticisms of the delay?

A. First, the Department referenced the strong and substantial comments from the industry that "investors are sufficiently protected by the imposition of the Impartial Conduct Standards along with many applicable non-ERISA consumer protections." 3 The extensive footnote references in the release which support these comments include a comment that, in addition to the existence of the Impartial Conduct Standards, "there is an additional existing and overlapping robust infrastructure of regulations that are enforced by the SEC, FINRA, Treasury and the IRS, not to mention the Department" to provide continuing protection to investors.

Q. What was the Department's ultimate rationale for not requiring the disclosures requested by those opposing the delay?

A. The Release provides the following reasons for not including these requirements:

  1. Many financial institutions are already "using their compliance infrastructures" to meet the requirements of the Impartial Conduct Standards.
  2. There are two enforcement mechanisms that remain in place: the imposition of excise taxes, and the existing cause of action under ERISA for improper fiduciary advice to ERISA plan assets, including advice concerning rollovers of plan assets into non plan investments.4

Q. Why are these comments relevant to an analysis of litigation risk and the steps necessary to reduce that risk?

A. A response to that question involves a three-step evaluation.   

  1. To the extent the Department has provided guidance on the conduct expected of those parties deemed to be "fiduciaries," the failure to adhere to that conduct would logically result in consequences. For example when the Department says it "expects that advisers and financial institutions will adopt prudent supervisory mechanisms to prevent violations of the Impartial Conduct Standards,"5 then the decision by financial institutions not to adopt such "supervisory procedures" might cause the Department to pursue enforcement.
  2. The second step is mere conjecture: Would this failure to act also increase the likelihood of private litigation? Bearing in mind the obstacles to such litigation outlined in our prior Q&As, it is nonetheless certainly plausible that an individual or class action alleging improper sales practices would likely allege the failure to adopt such special "prudent supervisory mechanisms" aimed at preventing violations of the Impartial Conduct Standards as a crucial element to its cause of actions. Moreover, the Department's statement of its view that "the impartial Conduct Standards require that fiduciaries, during the Transition Period, exercise care in their communications with investors, including a duty to fairly and accurately describe recommended transactions and compensation practices"6 would suggest current obligations not contemplated by many of these financial institutions, as noted by the footnote references in the DOL release.7
  3. The third step requires even more conjecture: Would these allegations only be relevant in private litigation that involves an ERISA violation? For example assume there is an allegation of improper advice from a financial institution annuity representative to move assets from a 401k plan — in which case, the argument, hypothetically, would be that the failure to adhere to the Department's clear mandate in the Release involves a fiduciary breach under ERISA (whether it does or not is not the issue here, we are simply noting the potential argument).

    Another hypothetical: What about private litigation allegations that do not involve a violation of ERISA — such as a class action alleging widespread elder abuse or fraud and misrepresentation in the sale of "unsuitable" annuities? Given the history of the plaintiff's bar in connection with class actions against both life insurers and their life insurance sales agents, it obviously should not be surprising if such claims were to be made. Would the failure to meet the standards articulated by the Department advance such claims? I doubt it. Most state court judges attempting to analyze the merits of a garden variety fraud, misrepresentation or abuse claim will likely be constrained to rely on state law and state court precedents.

FINAL QUESTION: Does the Department's comment that it will not pursue claims against investment advice fiduciaries who are working diligently and in good faith to comply with their fiduciary duties and to meet the conditions of the Prohibited Transaction Exemptions impose an obligation on such fiduciaries to make good faith efforts to implement the delayed provisions of these PTEs?

A. No. The DOL's release makes clear that there is no such specific obligation imposed on these fiduciaries during the transition period. Instead, the DOL stated it will "focus on the affirmative steps that firms have taken to comply with the Impartial Conduct Standards and to reduce the scope and severity of conflicts of interest that could lead to violations of those standards."8 Nonetheless, the Department goes on to note that for those institutions that choose to adhere to the "detailed standards" set forth in various portions of the delayed PTE's, such adherence "would certainly constitute good faith compliance."9


1 Release at 14.
2 Release at 15.
3 Release at 16.
4 Release at 17. Of note, however is that the Department's release goes on to state that it will "reevaluate this issue as part of the reexamination of the Fiduciary rule and PTW's in the context of considering the development of additional and more streamlined approaches."
5 Release at 18.
6 Release at 19.
7 See f.n. 29 to the Release and comments therein, including reference to Comment Letter 48 of the ACLI, to wit; "we strongly oppose a delay approach, based on undefined and ambiguous factors, such as whether firm has taken 'concrete steps' to 'harness market developments', would require the Department to subjectively and inappropriately pick and choose among providers and products based on vague factors."
8 Release at 30.
9 Id.  

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions