As of today, the applicability date to comply with the Department of Labor (“DOL”) Fiduciary Rule’s Impartial Conduct Standards is June 9, 2017. On April 7, 2017, the applicability date to comply with these specific standards was delayed 60 days from April 10, 2017 to June 9, 2017. While there is still possibility that another rule delay could take place before this new applicability date, it appears more likely at this given moment that this current applicability date for the Impartial Conduct Standards will stand. As such, we recommend that all registered investment adviser (“RIA”) firms assume that this new date will hold and be fully prepared to comply on June 9, 2017.
Note: RIA in a Box LLC is not a law firm and does not provide legal advice. We strongly advise that all RIA firms that provide services to individual retirement investors, pension plans, profit sharing plans, and/or retirement plans to consult with a qualified Employee Retirement Income Security Act of 1974 (“ERISA”) attorney in matters relating to DOL and ERISA law. This overview is provided for general information purposes only and should not be relied upon to take any action.This post below is as April 27, 2017. As the DOL issues additional guidance, we anticipate additional updates and/or modifications will be made to this solely educational overview.
As of June 9, 2017, RIA firms must comply with the Impartial Conduct Standards in regards to investment recommendations related to an IRA rollover from a qualified retirement plan, an IRA rollover from another IRA, a switch from a commission to fee-based IRA, or other applicable scenarios. As a quick refresher, the Impartial Conduct Standards state the following:
- Give advice that is in the Retirement Investor’s Best Interest (i.e., prudent advice that is based on the investment objectives, risk tolerance, financial circumstances, and needs of the Retirement Investor, without regard to financial or other interests of the Adviser, Financial Institution, or their Affiliates, Related Entities or other parties)
- Charge no more than reasonable compensation; and
- Make no misleading statements about investment transactions, compensation, and conflicts of interest.
While the other more specific requirements related to utilizing the “Level Fee Exemption” such as providing a written statement of fiduciary status or the more burdensome “Best Interest Contract” are presently delayed until January 1, 2018, RIA firms should understand that new training, documentation, and new policies and procedures may be needed in order to comply with the Impartial Conduct Standards. For example, while there may be no specific requirement as of June 9, 2017 to implement written policies and procedures, from a practical standpoint, it may be quite difficult to comply with the Impartial Conduct Standards without implementing new policies and procedures. As such, in order to comply with the applicable June 9, 2017 requirements, we recommend that RIA firms consider taking the following steps:
- Prepare now to comply with the streamlined Level Fee Exemption by reviewing current firm compensation and client fee billing practices to ensure that the firm will qualify for this exemption.
- Educate and train all advisory firm staff members on the broader DOL Fiduciary Rule and specifically the Impartial Conduct Standards. In particular, staff should be trained on the relevant scenarios for which the new standards may apply.
- Develop proper internal documentation through an “IRA Investment Recommendation Due Diligence Checklist” to demonstrate that proper diligence was conducted to ensure that an applicable investment recommendation is in the client’s best interests, no more than reasonable compensation is charged., and complies with the Level Fee Exemption (if relevant).
- Implement a new internal compliance process to review the diligence documentation on the proposed investment recommendation before the recommendation is made to the client.
- Establish additional compliance policies and procedures around staff onboarding, training, and client account review to ensure ongoing compliance with the rule.
We believe the requirement to comply with the Impartial Conduct Standards as of June 9, 2017 is likely to stand. Thus, while in the past we have cautioned advisors to take a more measured preparation approach given the assumption that the rule was likely to be delayed, it does not presently appear that the June 9, 2017 applicability date is likely to be further delayed. Therefore, it’s important that RIA firms begin to implement the relevant steps outlined above as soon as possible.
As RIA compliance consultants, we also suggest that all RIA firm principals review our past coverage of the DOL fiduciary rule:
- The Top 5 DOL Fiduciary Rule Experts Every RIA Firm Should Follow
- How an RIA Firm can Comply with the DOL Fiduciary Rule
- Part 1 of DOL Fiduciary Rule FAQs Confirms RIA Level Fee Exemption
- DOL Fiduciary Rule FAQs Part 2 Clarifies When the Rule Applies to RIAs
- The DOL Fiduciary Rule for RIA Firms: Where it Stands Today
- The DOL Fiduciary Rule for RIA Firms is Officially Delayed for 60 Days