Over the past decade, we’ve heard rumors of a new definition of “fiduciary” and saw the Department of Labor (DOL) issue proposed regulations, then withdraw those regulations, collect comments, reissue a new set of proposed regulations, and issue final regulations. President Trump called for examination of the final regulations, the effective date of the final regulations was pushed back, as well as the effective date of some of the accompanying exemptions, and then they were pushed back again. What has resulted is a seemingly moving target for new rules, and mass confusion for the public.

It is important for plan sponsors, participants and service providers to understand what exactly is operative at present and what has been delayed. In short, the definition of fiduciary, which had been in place since 1974, was replaced in the new final regulations which the DOL issued on April 6, 2016. The original applicability date for the new rules was set for April 10, 2017, with some of the best interest contract (BIC) exemption rules set to become applicable on January 1, 2018.

The applicability date was subsequently pushed back to June 9, 2017 (with some of the BIC requirements remaining dormant until January 1, 2018). June 9th came and went without any further delays. So effective June 9, 2017 the new definition of fiduciary became operative. In addition, the impartial conduct standards required by the BIC exemption also became effective. Nothing that has occurred, or been issued since, has caused either the new definition of fiduciary or the impartial conduct standards to be withdrawn or delayed. In other words, they are currently operative and enforceable. So the scope of the definition of fiduciary is presently much broader in scale than it was previously. And the impartial conduct standards, which require financial service providers to “give advice that is in retirement investors’ best interest, charge no more than reasonable compensation and avoid misleading statements,” remains in place.

What has been delayed are some of the operational and administrative elements of the BIC exemption (primarily disclosure rules and procedures) and two prohibited transaction exemptions that allow investment advisors to receive compensation from investment product providers recommended and moving the sale of indexed and variable annuities under the BIC exemption rules. All of these elements of the new rules are continuing to be reviewed by the DOL until the new target applicable date of July 1, 2019.

Takeaways

• There is a new definition of fiduciary in terms of providing investment advice, and it is operative at present.
• For scenarios in which conflicted compensation might be involved, the impartial conduct standards of the BIC exemption are operative at present.
• Much of the disclosure and procedural rules have been delayed until mid-2019.
• It is likely that the DOL’s review of the new rules will result in the new standards remaining in place, continuing to promote the goals of the fiduciary rule, but will be reformed in a manner to create greater efficiencies.

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