On April 8, 2016, the Department of Labor (DOL) made its final ruling on who is a “fiduciary” and, for a year now, financial professionals have been preparing in one way or another for this new normal.
At Beacon, we already worked under a fiduciary standard, but that didn’t stop us from working with all our financial partners on new processes. For over a year now, we have been studying the final DOL rule and working with our partners, making sure everybody’s on the same page with how we’re going to handle this ruling.
As you know by now, with the clock ticking down on the original April 10 application date, the Department of Labor (DOL) provided a 60-day extension. This recently pushed the application date of the fiduciary rule to June 9. What does this mean for you?
Along with the delay, the DOL changed the language on how the fiduciary rule would be enforced during the grace period or transition period—from June 9 until January 1, 2018. Under the previous language, anything that is considered a prohibitive transaction, such as referral fees or 12B-1 fees, would require compliance with the full Best Interest Contract Exemption (BICE) or Principal Transaction Exemption.
The new language covering the transition period is much less cumbersome. Now advisors can adhere to the Impartial Conduct Standards in lieu of complying with the arduous full BICE when seeking relief from a prohibited transaction through the end of the year. The Impartial Conducts Standards state that advisors and firms:
- Act in the best interest of retirement investors
- Receive no more than reasonable compensation for their services
- Make no material misleading statements about a recommended transaction, fees and compensation, material conflicts of interest, or any other relevant matters.
This new language caught most people within the industry by surprise, but it’s a win for advisors and financial institutions. It’s the kind of change the industry was hoping for and allows for an easier transition until January 1, 2018.
The Trump Effect
During the Presidential campaign, one of Trump’s promises was a move toward deregulation. Many wondered if this meant the DOL rule would be changed significantly or completely overturned. Earlier this year, a Texas district court judge ruled in favor of the DOL and the Fiduciary Rule. Judge Barbara Lynn denied the plaintiff’s (U.S. Chamber of Commerce) motion for summary judgment and upheld the DOL’s motion while shooting down each of the plaintiff’s seven key challenges to the fiduciary rule. Does that mean the battle is over? No, but we believe it is prudent that all financial professionals should prepare now for the rule as it’s currently worded.
The delay gives you more time before the fiduciary rule goes into effect, so use that time to make sure you can hit the ground running. With nearly two months before that June 9 deadline, now is the time to leverage the experts, whether that’s our team at Beacon or your company’s back office, compliance department or ERISA team.
At Beacon, we have been working nonstop the last year in preparing for the DOL and have created literature and webinars that we will be rolling out in the near future. These are educational in nature and will help further explain the DOL’s changes, how it affects advisors, and what you can do to comply. We will explain in detail, for instance, how a firm that engages with third-party managers as a solicitor can continue to receive compensation and use those managers going forward while avoiding prohibited third-party compensation.
At Beacon, we are committed to compliance and educating our partners on the DOL. For further assistance on how the fiduciary rule will impact you, contact your wholesaler today!
Please note none of the information discussed above should be considered or viewed in any way as legal advice. As always, we strongly encourage that you consult with your firm’s own compliance department and ERISA counsel for legal guidance.