LEGAL UPDATE:  Fiduciary “Conflict of Interest” Rule’s Delayed Applicability for Certain Provisions

January 10, 2018

A presidentially mandated review by the Department of Labor (DOL) of the regulation known as the Fiduciary Conflict of Interest rule has resulted in certain provisions of the original rule being set forth and some requirements of the rule being further delayed, moving the deadline of complete implementation to July 1, 2019.

Originally slated for an April 10, 2017 applicability date, with a transitional period for compliance with the written exemptions through January 1, 2018, the final rule was published November 29, 2017, extending the deadline for compliance with certain provisions of the rule’s exemptions another 18 months, to July 1, 2019.

The delay does not affect the initial rule’s expanded definition of a “fiduciary” and those who now fall into the fiduciary category must adhere to the new standard of conduct when operating as one. The following aspects of the rule are impacted by the extension, moving compliance to July 1, 2019:

  • Best Interest Contract (BIC) exemption (PTE 2016-01); on July 1, 2019, this PTE requires that an enforceable, written contract between retirement investor and financial institution be in place. The exemption also covers financial institutions’ adherence to new policies and procedures that meet specified criteria for conflict mitigation.
  • Principal Transactions exemption (PTE 2016-02); as of July 1, 2019, this PTE requires a contract and a policies-and-procedures warranty that mirror the BIC Exemption requirements be in place.
  • Prohibited Transactions (PTE 84-24 amendments); applicable transactions include insurance and annuity contracts, and mutual fund shares, and, with the exception of Impartial Conduct Standards, amendments will not be implemented until the 2019 extension.

The fiduciary rule, first published in April 2016, sets forth that financial professionals who advise investors must act in the best interest of their clients when recommending investment products by adhering to impartial conduct standards and must utilize one of the Prohibited Transaction Exemptions (PTEs) if the advice provided falls outside of the scope of fiduciary responsibility.