Regulation and Compliance State Regulation

DOL Releases Fiduciary Rule Request for Information

June 29, 2017 at 02:17 PM
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The Department of Labor on Thursday published a Request for Information (RFI) regarding its fiduciary rule.

Information gleaned from comments "could form the basis of new exemptions or changes/revisions" to the fiduciary rule and its associated prohibited transaction exemptions, or PTEs, Labor said, as well as the possibility of extending the Jan. 1 applicability date of certain provisions in the Best Interest Contract Exemption, the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs, and Prohibited Transaction Exemption 84-24, which deals with annuities.

There is a 15-day comment period regarding extending the Jan. 1, 2018, applicability date of certain aspects, and a 30-day comment period on all other issues raised in the RFI.

Both begin upon publication of the RFI in an upcoming edition of the Federal Register. 

The RFI, which had been under review at the Office of Management and Budget, asks for feedback on 18 questions.

Labor has already been fielding comments as part of President Donald Trump's Feb. 3 executive order that Labor review the rule.

Labor said Thursday that public input on the rule and PTEs has suggested that "it may be possible in some instances to build upon recent innovations in the financial services industry to create new and more streamlined exemptions and compliance mechanisms."

For instance, one recent innovation is the possible development of mutual fund "clean shares."

Many firms, the RFI states, "appear to be considering the use of such 'clean shares' as a long-term solution to the problem of mitigating conflicts of interest with respect to mutual funds," but commenters have noted, however, "that funds will need more time to develop clean shares than contemplated" by the Jan. 1 deadlines.

Commenters also point to insurance companies' potential development of fee-based annuities in response to the fiduciary rule, the RFI states, as well as firms developing new technology, and advisory and data services to help financial Institutions satisfy the supervisory requirements of the PTEs.

"The Department welcomes information on these developments and their relevance to the rule, the PTEs' terms and compliance timelines," the RFI says, with particular interest in public input on whether "it would be appropriate to adopt an additional more streamlined exemption or other rule change for advisors committed to taking new approaches like those outlined above based on the potential for reducing conflicts of interest and increasing transparency."

Fred Reish, partner in Drinker Biddle & Reath's employee benefits and executive compensation practice group in Los Angeles, says that the questions in the DOL's RFI reflect the rules and requirements in the fiduciary regulation and exemptions that were "the most controversial and the most difficult to comply with." 

Interestingly, Reish noted, the RFI's questions about the fiduciary regulation "are more consistent with keeping the fiduciary definition, but possibly modifying the regulation in some regards. The request doesn't ask the kinds of questions that would produce evidence to 'kill' the regulation."

The questions about the BICE focus on "class-action litigation and the contract and warranty provisions," Reish points out. "There is also a focus on streamlining the exemption to reduce the compliance burden."

Labor also wants commenters to weigh in on how it could coordinate with the Securities and Exchange Commission "in issuing compatible, but perhaps not identical, guidance," Reish adds.

Labor also seeks feedback on whether the 84-24 exemption should include all types of annuities. "While the transition 84-24 and the 'old' 84-24 covers all types of annuities, the version that is scheduled to be applicable on Jan. 1, 2018 is limited to fixed rate annuities," Reish notes.

The RFI also asks about extending the transition rules past Dec. 31. "Considering how long it takes to analyze these issues and prepare a new regulation and exemptions—particularly if there is coordination with the SEC — an extension will be necessary," Reish said.

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