The US Department of Labor (DOL) released its “Request for Information Regarding the Fiduciary Rule and Prohibited Transaction Exemptions” on June 29. Highlights from the RFI, which was published in the Federal Register on July 6, include the following:
- Potential delay of January 1 compliance date. The DOL requests comments on whether to extend the transition period by delaying the applicability of certain conditions of the exemptions beyond January 1, 2018. Comments on the delay are due July 20.
- Focus on clean shares, T-shares and fee-based annuities. As expected, the RFI includes a number of questions about clean shares, T-shares, and other “innovations” such as fee-based annuities. The DOL further requests input on the possibility of developing a “streamlined exemption” based on these approaches.
- Coordination with other regulators, including the SEC. Indicating its previously expressed desire to better coordinate the rule with other financial services regulators, including the US Securities and Exchange Commission (SEC), the DOL asks several questions about current and potential new standards that apply to retail investment advice, including the following:
- Whether the DOL can develop relief or change the rule based on a new standard of conduct established by the SEC or another regulator
- Whether the existing regulatory regime for IRAs provides sufficient consumer protections for purposes of the exemptions (for more on this, please see the SIFMA/Morgan Lewis White Paper “Department of Labor Retirement Initiative Fails to Consider Current Regulatory Regime, Which Comprehensively Protects Investors, Including IRA Investors, and Preserves Investor Choice”)
- Costs and benefits of going beyond the impartial conduct standards. Noting that only the impartial conduct standards (duty of care, duty of loyalty, reasonable compensation, and no misleading statements) apply during the transition period, the DOL asks about the costs and benefits of allowing the additional exemption conditions to become applicable on January 1. In particular, noting the litigation risks, the DOL queries whether the contract and warranty requirements could be eliminated or changed, and what impact doing so would have on compliance with the impartial conduct standards.
- Expanding the Principal Transactions Exemption. The DOL asks whether expanding or revising the Principal Transactions Exemption would better serve investors and provide market flexibility. We note that many have raised concerns about the impact the restrictions on eligible assets have had on investor choice—particularly with respect to IPOs, underwritings, and structured products.
- Relief for bank deposits. The DOL is considering whether issues with bank deposit IRAs and HSAs can be better addressed through a change to the rule or a streamlined exemption.
- Model disclosures and policies and procedures. The DOL seeks input on its potentially developing model disclosures and policies and procedures.
- Changes to the definition of fiduciary investment advice. The DOL appears to be considering changes to the definition of fiduciary investment advice that could potentially narrow its scope, including expanding the exception for communications with independent fiduciaries with financial expertise and carving out communications about increasing contributions to plans and IRAs.
The comment period deadline for issues other than the delay is August 7. We encourage interested parties to comment on these topics and the other issues the DOL raises in the RFI.