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Monday, February 24, 2020

DOL officially puts Obama administration’s fiduciary rule on hold for 18 months

By Jessica Karmasek | Nov 30, 2017

Contract 08

WASHINGTON (Legal Newsline) - The U.S. Department of Labor on Monday officially put its fiduciary rule on hold for 18 months.

The DOL, in a news release, announced it finalized plans to extend the transition period for full implementation from Jan. 1, 2018 to July 1, 2019.

This includes the rule’s Best Interest Contract, or BIC, exemption and the Principal Transactions Exemptions, along with the applicability of certain amendments to Prohibited Transaction Exemptions, or PTEs.

The rule, released in April 2016, mandates financial professionals who service individual retirement accounts, including IRAs and 401(k) plans, to serve the “best interest” of the savers and disclose conflicts of interest.

The move comes following public comment on the proposed extension that was published in August.

“The extension gives the Department the time necessary to consider public comments submitted pursuant to the Department’s July Request for Information, and the criteria set forth in the Presidential Memorandum of Feb. 3, 2017, including whether possible changes and alternatives to exemptions would be appropriate in light of the current comment record and potential input from, and action by the Securities and Exchange Commission, state insurance commissioners and other regulators,” according to the department’s release.

President Donald Trump directed the department to review the rule soon after taking office.

On Tuesday, SEC Chairman Jay Clayton told InvestmentNews that his agency definitely will be involved in developing a fiduciary standard, calling it a “priority.”

“I think we belong in this space,” Clayton said. “And we should try and produce a rule, that, when investors see it, they are happy with.”

During the extended transition period, the department said fiduciary advisers have an obligation to give advice that adheres to “impartial conduct standards.” These standards require advisers to adhere to a best interest standard when making investment recommendations, charge no more than reasonable compensation for their services, and refrain from making misleading statements.

The DOL on Monday also announced an extension of the temporary enforcement policy to cover the 18-month extension period.

“Thus, from June 9, 2017 to July 1, 2019, the Department will not pursue claims against fiduciaries working diligently and in good faith to comply with the Fiduciary Rule and PTEs, or treat those fiduciaries as being in violation of the Fiduciary Rule and PTEs,” the release states.

Various financial services groups, including the American Bankers Association, applauded the DOL’s decision to finalize the delay, allowing professionals more time to comply.

However, others view the extension as a blow to retirees.

U.S. Sen. Elizabeth Warren, D-Mass., was most displeased at the news.

“Today, the Department of Labor gave shady financial advisers an early Christmas gift,” Warren said Monday. “These advisers now will have 18 more months to cheat hardworking Americans out of billions in retirement savings by recommending products that are bad for their customers but earn themselves higher fees, big commissions, and special kickbacks like tropical cruises or expensive jewelry.”

Lisa Donner, executive director of Americans for Financial Reform, said the DOL’s decision shows the Trump administration clearly is on Wall Street’s side.

“If this slow-motion effort to eviscerate the fiduciary rule goes through, Americans will live less comfortable, less secure retirements,” Donner said. “Some on Wall Street want to make more money peddling investments that aren’t in the best interests of savers, and they’ll keep on doing it.

“The Trump administration is giving them an open invitation to do so.”

In July, the DOL published a Request for Information, or RFI, related to the rule and whether to delay its full implementation.

“The RFI is an opportunity for the public to provide data and information that may be used to revise the rule and associated exemptions,” the department said in June 29 news release.

The DOL said public input would assist in “determining future actions on the rule and related exemptions.”

Prior to that, in April, the department released a measure delaying implementation of the rule and certain related exemptions by 60 days, until June 9.

But written disclosure requirements and the full BIC exemption were still scheduled for Jan. 1, 2018 implementation.

From Legal Newsline: Reach Jessica Karmasek by email at

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U.S. Department of LaborU.S. Securities and Exchange Commission