DOL’s Fiduciary Rule Transition Period Ends

Impartial Conduct Standards

During the transition period, financial institutions and advisers must comply with the “impartial conduct standards” which are consumer protection standards that ensure that advisers adhere to fiduciary norms and basic standards of fair dealing. The standards specifically require advisers and financial institutions to:

• Give advice that is in the “best interest” of the retirement investor. This best interest standard has two chief components: prudence and loyalty:
• Under the prudence standard, the advice must meet a professional standard of care as specified in the text of the exemption;
• Under the loyalty standard, the advice must be based on the interests of the customer, rather than the competing financial interest of the adviser or firm;
• Charge no more than reasonable compensation; and
• Make no misleading statements about investment transactions, compensation, and conflicts of interest.

Full Compliance Date

Absent further action from the DOL, the fiduciary rule transition period ends on January 1, 2018, and full compliance with all of the exemptions’ conditions is required for firms and advisers that choose to engage in transactions that would otherwise be prohibited under ERISA and the Internal Revenue Code. These conditions importantly include, among other things, requirements to execute a contract with IRA investors with certain enforceable promises, make specified disclosures, and implement specified policies and procedures to protect retirement investors from advice that is not in their best interest. The contract could require the IRA investor to pursue individual claims through arbitration, but must preserve the investors’ ability to bring class action claims in court.