The Department of Labor will not pursue prohibited transactions claims against fiduciaries “who are working diligently and in good faith to comply with the impartial conduct standards.”
It’s the first release by the DOL in the aftermath of the bombshell ruling from the Fifth Circuit Court of Appeals that vacated the department’s Conflict of Interest Rule, known colloquially as the fiduciary rule.
The latest announcement applies specifically to transactions that would have been exempted in the BIC Exemption and Principal Transactions Exemption. It added that it will not treat such fiduciaries (those acting diligently and in good faith) as having violated the applicable prohibited transaction rules.
It made the policy retroactive to June 9, 2017, and “until after regulations or exemptions or other administrative guidance has been issued.”
“Of course, investment advice fiduciaries may also choose to rely upon other available exemptions to the extent applicable after the Fifth Circuit’s decision, but the Department will not treat an adviser’s failure to rely upon such other exemptions as resulting in a violation of the prohibited transaction rules if the adviser meets the terms of this enforcement policy,” it said Monday in Field Assistance Bulletin No. 2018-02.
The Department is also “evaluating the need for other temporary or permanent prohibited transaction relief for investment advice fiduciaries, including possible prospective and retroactive prohibited transaction relief. The Department will, of course, consider any applications for additional relief.”
The document announces a temporary enforcement policy related to the DOL’s rule defining who is a “fiduciary” under ERISA and the IRS Code, including the Best Interest Contract Exemption.
“At this point, however, the Department is aware that some financial institutions may be uncertain as to the breadth of the prohibited transaction exemptions that remain available for investment advice fiduciaries following the court’s order.”
The uncertainty about fiduciary obligations and the scope of exemptive relief could disrupt existing investment advice arrangements to the detriment of retirement plans, retirement investors, and financial institutions.
Further, some financial institutions have devoted significant resources to comply with the BIC Exemption and the Principal Transactions Exemption and may prefer to continue to rely upon the new compliance structures.
Based upon these concerns, the Department has concluded that financial institutions should be permitted to continue to rely upon the temporary enforcement policy, pending the Department’s issuance of additional guidance.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
