Complying with Impartial Conduct Standards under the DOL s Fiduciary Rule

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2 Complying with Impartial Conduct Standards under the DOL s Fiduciary Rule JUNE 13, 2017 Blaine Aikin, AIFA, CFA, CFP Duane Thompson, AIFA Executive Chairman, Fi360 Senior Policy Analyst, Fi360

3 Agenda 1. Fiduciary Rule Status Update on DOL, SEC Reviews 2. DOL Temporary Enforcement Policy 3. Compliance with the Impartial Conduct Standards 4. Pending Compliance Requirements on Jan. 1, Q&A 3

4 Why the DOL kept June 9 deadline Feb. 3 Presidential Memorandum seeks new review of Fiduciary Rule We have carefully considered the record in this case, and the requirements of the [APA], and have found no principled legal basis to change the June 9 [compliance] date while we seek public input. Mar. 3 DOL Proposes 60-day delay of April 10 deadline until June 9 under expedited rulemaking - LABOR SECRETARY ALEXANDER ACOSTA, MAY 23, 2017 Late April to May Rule s opponents pressure Acosta to further delay June 9 deadline 4

5 DOL s Next Steps Request For Information (RFI) to be published relatively soon DOL soliciting public comments on various aspects of the Rule including additional delay past Jan. 1 deadline Invites SEC to be a full participant 5

6 SEC Vows Action, Coordination with DOL June 1 Citing need to coordinate with DOL, SEC Chairman Jay Clayton requests public comment on current regulatory framework and range of potential regulatory options 17 Topics include: Investor confusion Conflicts of interest Costs/benefits of different standards (DOL vs. SEC, RIA vs. BD) Disclosure-based approach vs. standards-of-conduct approach 6

7 Roadblocks to Regulatory Harmonization 7

8 DOL Temporary Enforcement Policy The Department has repeatedly said that its general approach to implementation will be marked by an emphasis on assisting (rather than citing violations and imposing penalties on) plans, plan fiduciaries, financial institutions, and others who are working diligently and in good faith to understand and come into compliance with the fiduciary duty rule and exemptions. -- Field Assistance Bulletin (May 22, 2017) 8

9 Temporary Enforcement Policy -- Conditions Effective June 9, 2017 to January 1, 2018 DOL will not pursue claims against fiduciaries working diligently and in good faith to comply with rule and exemptions DOL will consider additional steps to the extent that circumstances surrounding the (Jan. 1 compliance date) and exemptions give rise to the need for other temporary relief DOL policy does not apply to investor disputes brought to arbitration or court Don t forget 408(b)(2) disclosure of fiduciary status if you were not a fiduciary prior to June 9. 9

10 Compliance with the Impartial Conduct Standards [T]his approach provides retirement investors with the protection of basic fiduciary norms and standards of fair dealing, while at the same time honoring the President s directive to take a hard look at any potential undue burdens. -- DOL Rule Preamble (published 4/7/17) extending Apr. 10 deadline 60 days 10

11 A picture worth a thousand pages 11

12 Who is a fiduciary under the Rule? 12

13 Impartial conduct standards - the key to compliance 13

14 Requirements of the best interest standard 14

15 Practices to conform to the best interest standard 15

16 January 1 Compliance Deadline Absent further action by Congress or DOL, as of January 1, 2018: Light enforcement touch by DOL ends Full compliance with eight PTEs goes into effect, for some exemptions this means: Notification to DOL Written acknowledgement of fiduciary status Contract warranties of compliance with ICS Prohibition on quotas, bonuses, contests conflicting with investor s best interest Various disclosures of conflicts, including fees, limitations on products offered Firm contact for complaints Updated website disclosures, including links to BrokerCheck, IARD Recordkeeping for six years 16

17 How the Rule works: rollover advice 17

18 Advice on distributions from retirement plans 18

19 IRA rollover decisions after January 1 19

20 What if the final rule is delayed further or modified? What should you do? Focus only on Impartial Conduct Standards? Don t worry about pending requirements for January 1? Hope for a new streamlined exemption from DOL? Wait until the last minute to hire a compliance expert? 20

21 The professional advisor s mandate Do what is right for the client Duty of Loyalty Deliver professional-grade products and services Duty of Care Run a sustainable business without compromising fiduciary principles In short, do what is right, skillfully and profitably 21

22 Final thoughts DOL s Fiduciary Rule is likely to prevail, albeit with some changes; fundamental fiduciary duties of loyalty and care will remain intact The SEC will not be able to dilute the ERISA fiduciary standard for retirement advice; SEC proposes to introduce a fiduciary standard governing retail advice that is somehow aligned Product/price compression will continue due to greater transparency, regulatory and competitive pressures, and technology-enhanced due diligence Compensation for advice is likely to be stable and ultimately rise as a matter of supply and demand and due to higher standards of conduct Professional practice business models will be most sustainable at the high-end Financial planning and professional specialization will be favored 22

23 Questions, Answers and Discussion Additional information on fiduciary trends can be found at fi360 Fiduciary Talk Podcast (also available on itunes) and the Fi360 Blog 23