The Latest on the Fiduciary Rule & Compliance Tips

The Department of Labor recently filed their proposal for an 18-month extension of the transition period for the fiduciary rule with the Office of Management and Budget. If approved, the extension would delay certain applicability dates for the rule yet again.

Currently, consultants, advisors, insurance agents and others must comply with the rule’s expanded definition of fiduciary advice in the Employee Retirement Income Security Act (ERISA) and the Impartial Conduct Standards. Those parts of the law went into effect on June 9, 2017.

The rest of rule was to be implemented on January 1, 2018. However, the proposed extension would postpone the applicability date of the Best Interest Contract Exemption (PTE 2016-01), the Principle Transaction Exemption (PTE 2016-02), and Prohibited Transaction Exemption (PTE) 84-24 until July 1, 2019.

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What Does This Mean for You?

If you provide investment or management advice for qualified retirement plans (which include annuities), you have some more time to prepare and get your business in good order. Right now, you must continue to comply with the Impartial Conduct Standards. The other parts of the rule will go into effect July 1, 2019, assuming the OMB approves the delay and the DOL doesn’t make any changes to the law.

With the extension of the fiduciary rule’s transition period, the DOL also extended the Temporary Enforcement Policy. In the DOL’s own words in the official notice in the Federal Register, this means they “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 PTEs.” So, it’s less likely you’ll receive citations for violations of the rule, and more likely the DOL will attempt to help you understand and comply with the rule.

Note: Many insurers have told those who work with insurance only that they will not be acting as a financial institution that offers compliance assistance with the Impartial Conduct Standards. If you’re appointed to sell insurance, you may see carriers asking you to sign an attestation form that states you’re following these standards.

What Are the Impartial Conduct Standards Again?

The Impartial Conduct Standards are the three principles that you must adhere to when you make recommendations to transfer qualified funds or change allocations in qualified accounts (IRAs, 401(k)s, and 403(b)s). They are as follows:

  1. You must provide investment advice that’s in the best interest of the client.
  2. You cannot charge more than reasonable compensation for investment advice and services.
  3. You must not make statements that could be considered misleading.

Tips for Staying Compliant with the Fiduciary Rule

In short, staying compliant with the DOL’s fiduciary rule will involve documenting, record-keeping, and finding the best solutions for your clients’ needs. Here are some tips to help you along the way:

  • Thoroughly evaluate your client’s goals, needs, and risk tolerance.
  • Consider the client’s health, age, time horizon, medical spending, as well as any preferences they may have that are relevant to the situation.
  • Provide the client with accurate information and be transparent about all commissions, fees, benefits, expenses and conflicts of interest.
  • Only make recommendations that are in the client’s best interest (based on the information you gather while evaluating the client’s situation).
  • Sign the necessary attestation and disclosure agreement forms with the client to document that you’ve done all of the above and your client agrees.
  • Maintain organized files on each client that contain all completed documentation.
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The extension of the transition period for the fiduciary rule will provide you with 18 more months than you originally had to gain a complete understanding of the upcoming changes and new standards of business. Now’s the time to do your research and ask any questions you may have to ensure you’re fully prepared for the future.

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