DOL Fiduciary Rule Taking Effect June 9 Is Low-Calorie, But Still Hard for Some to Swallow  

Employee Benefits Alert

June 1, 2017

Though many in the financial services industry were hoping for a reprieve, anyone who receives compensation for providing investment advice in connection with an ERISA plan or IRA will be considered a fiduciary effective June 9, 2017. Fiduciary status brings strict limits on certain otherwise permissible (and common) arrangements. Individuals or companies who are considered fiduciaries under the new rule must meet “impartial conduct standards” to qualify for the related prohibited transaction exemptions.

Designed to protect retirement investors from advice tinged by conflicts of interest, these regulations (the Fiduciary Rule) and related prohibited transaction exemptions (PTEs) greatly expand the definition of “investment advice fiduciary” and require that individuals or entities who meet that expanded definition either (1) structure their compensation arrangements to avoid engaging in prohibited transactions or (2) meet the requirements for a PTE. The foremost PTEs available to fiduciary advisers are the Best Interest Contract (BIC) Exemption and the Principal Transactions Exemption.

The U.S. Department of Labor (DOL) initially delayed the applicability dates for the Fiduciary Rule and related PTEs from the original effective date of April 10, 2017, until June 9, 2017, and there was some hope for a further extension to January 1, 2018 (or even the withdrawal of the Fiduciary Rule). This hope partially faded on May 22, when Secretary of Labor Alexander Acosta announced in an op-ed in The Wall Street Journal that the Fiduciary Rule would not be withdrawn or further delayed; however, some of the more onerous requirements of the PTEs will not take effect until January 1, 2018.

DOL’s “Transition Period” Will Protect Investors While Giving Fiduciaries Time to Prepare for More Onerous Requirements

The DOL announced that the period between June 9, 2017, and January 1, 2018, will be a “transition period” during which the BIC and Principal Transactions PTEs will be satisfied as long as “impartial conduct standards” are observed. Although the impartial conduct standards do provide significant protections to retirement investors, they are not as difficult to satisfy as the comprehensive requirements of the BIC and Principal Transactions PTEs. For example, the BIC PTE requires, among other things, an enforceable, written contract (with specific terms) and certain disclosures, neither of which are required under the impartial conduct standards.

The impartial conduct standards impose three basic requirements on fiduciary advisers. They must: (1) give advice that is in the best interest of the retirement investor (as measured by regulatory prudence and loyalty standards); (2) charge no more than reasonable compensation; and (3) make no misleading statements about investment transactions, compensation, and conflicts of interest. While this transitional relief is welcome, investment advisers should be aware that on January 1, 2018, the full requirements of the BIC and Principal Transactions PTEs will go into effect (unless there is an additional delay).

Additional changes are still possible. In February, President Trump directed the DOL to examine the Fiduciary Rule to determine whether it might diminish access to retirement information and financial advice. That examination is ongoing, and the DOL has announced its intention to release a Request for Information soon to gather additional public input on ideas for new exemptions and/or regulatory changes.

The good news? According to a Field Assistance Bulletin released May 22, the DOL “has determined that temporary enforcement relief is appropriate.” Therefore, until January 1, 2018, the DOL “will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions.”

Even so, an ounce of prevention is worth a pound of cure, and fiduciaries would do well to consider their options under the new rules immediately to avoid problems when the calendar turns. In addition, interested parties may wish to submit comments to the DOL during the transition period as the DOL has signaled that it “… is interested in hearing from stakeholders about ... whether an additional extension of the January 1, 2018, date for full compliance with the BIC Exemption is appropriate.”

The DOL has released an FAQ document on the Fiduciary Rule’s transition period, which is available here. The Field Assistance Bulletin mentioned above is available here.


Jay A. Dorsch

Chair, Employee Benefits and Executive Compensation

(215) 665-4685

Matthew D. Clyde


(412) 620-6517

Related Practices

If you would like to discuss this Alert, please contact any member of Cozen O’Connor’s Employee Benefits & Executive Compensation group: Jay A. Dorsch (215-665-4685), L. Stephen Bowers (215-665-7283), Lynn Krisay Brehm (704-348-3460), Matthew D. Clyde (412-620-6517), and John H. Wilson (412-620-6511).