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By: Ze’eva Kushner
Broker-dealers and registered investment advisors take note. The Department of Labor’s much anticipated Fiduciary Rule requiring financial advisors to act in the best interests of their clients in retirement accounts became effective on June 9, 2017. As those following the Rule are aware, full implementation is not required to take place until January 1, 2018, but certain provisions of the Rule became effective on June 9, 2017.
The DOL Fiduciary Rule has been a work in process since the Obama Administration made its first rule proposal in 2010. The rule, entitled “Definition of the Term ‘Fiduciary’; Conflict of Interest Rule – Retirement Investment Advice,” expands the definition of who is a fiduciary under the Employment Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code of 1986 as a result of giving investment advice to a retirement plan or its participants or beneficiaries.
The DOL Fiduciary Rule has had a tumultuous history, but the rulemaking process was completed before the election, and the first phase of the Fiduciary Rule was set to take effect on April 10, 2017. Many broker-dealers and investment advisors had invested substantial time, energy and financial resources into preparing to comply with the new rule.
But with a new administration comes new directives. President Trump issued an official memorandum on February 3, 2017 ordering the DOL to conduct an updated economic and legal analysis of the Fiduciary Rule. The DOL was re-tasked with undertaking a new analysis regarding whether the Fiduciary Rule would adversely affect the ability of investors to get access to retirement information and financial advice as financial services businesses and trade organizations have been warning since 2010.
Approximately a month later, on March 2, 2017, the DOL delayed the applicability of the Fiduciary Rule for 60 days and opened the floor for public comments, which were due by April 17, 2017. Before the April 17 deadline, however, the DOL again delayed the implementation date of the Rule, this time until June 9, 2017.
Two provisions of the Rule became applicable on June 9, 2017: (i) the expansion of the definition of who is a fiduciary; and (ii) the establishment of impartial conduct standards. In other words, advisors to retirement investors must give advice that is in the best interest of the retirement investor, charge no more than reasonable compensation, and make no misleading statements. The DOL is going to continue its economic analysis and has requested additional input. In the meantime, politicians in Washington D.C. are working on legislation that would kill the DOL’s Fiduciary Rule in its current state.
The DOL has stated that it will not enforce any part of the Fiduciary Rule until the January 1, 2018 full implementation date. It seems unlikely that Plaintiff’s lawyers will delay trying out their new theories of liability under the new Rule. The much-anticipated change in the landscape regarding servicing retirement accounts has arrived.
The Financial Services practice group attorneys are here to assist you. Please contact Ze’eva Kushner at [email protected] for more information.