Current Thinking

DOL Considers Changes To Fiduciary Rules

A blog by Pete Swisher, CFP®, CPC Senior Vice President, Pentegra Retirement Services

Yesterday, the DOL issued a Request for Information about its Conflict of Interest rules (“COI rules”), and the nature of the questions appears to suggest that the Department is open to significant changes. The paraphrased questions include:

  1. Should the January 1, 2018 applicability date be extended?
  2. Should there be additional or more streamlined exemptions for new products such as mutual fund “clean” shares or T-shares (limited/no revenue share) or fee-based annuities? How much time does the industry need to bring such products online?
  3. Is it enough simply to impose the Impartial Conduct Standards found in Section II(c) of the BIC without any additional conditions? Are the additional exemption conditions (like the BIC) that are currently scheduled to kick in on 1/1/18 necessary? If so, should they be streamlined? And if so, how?
  4. What would be the impact, good and bad, if the DOL “eliminated or substantially altered the contract requirement for IRAs?…Does compliance with the Impartial Conduct Standards need to be otherwise incentivized in the absence of the contract requirement, and, if so, how?”
  5. Should the BIC disclosure requirements be simplified, such as to “focus the investor’s attention on a few key issues, subject to more complete disclosure upon request?”
  6. What if the Department “eliminated or substantially altered the warranty requirements” (of the BIC)? “Does compliance with the Impartial Conduct Standards need to be otherwise incentivized in the absence of the warranty requirement, and, if so, how?”
  7. How would a fee-based annuity actually work? Do payments come from the annuity, from the client, or both? Would fee-based annuities differ from commission-based annuities only in the payment structure? How hard will it be to get fee-based products up and running?
  8. If the SEC or other regulators were to publish new conduct rules for advisors providing investment advice to retail investors, should there be streamlined exemptions for advisors following those other rules? To what extent do SEC/FINRA/other regulatory rules for IRAs already provide enough protections, such that the DOL could streamline exemptions?
  9. “Should recommendations to make or increase contributions to a plan or IRA be expressly excluded from the definition of investment advice?” Or should there be a streamlined exemption with respect to contributions? (Do “contributions” include rollover contributions? The RFI does not specify.)
  10. Should recommendations about investment of IRA assets in deposit-based bank accounts, like CDs, be excluded from the definition of investment advice? Or should there be streamlined exemptions with respect to bank products and HSAs?
  11. Should the grandfathering provision be expanded?
  12. Should insurance intermediaries be allowed to serve as “financial institutions” to allow them to use the BIC? Or, alternatively, should PTE 84-24 be expanded to include all types of annuity, including Fixed Indexed Annuities (which must use the BIC as the rules stand today)?
  13. Would allowing Fixed Indexed Annuities to use PTE 84-24, instead of the BIC, give such products a competitive advantage over mutual funds or other products for which streamlined exemptions are not available?
  14. Should the exception to fiduciary status for recommendations to institutional fiduciaries (e.g., banks and RIAs managing $50 million or more) be expanded?

The time-frame for response is tight: just fifteen days to answer the first question about extending the 1/1/18 deadline, and thirty days to answer the rest.

The debate over fiduciary standards of care is far from over—in some ways, it is just beginning.

About the Author:
Pete Swisher is the author of 401(k) Fiduciary Governance: An Advisor’s Guide, a textbook for the ASPPA Qualified Plan Financial Consultant credential, and serves as Senior Vice President and National Sales Director for Pentegra, where he can be reached at pete.swisher@pentegra.com.



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