DOL Rule Delay. The DOL signaled that it intends to delay a portion of the conflict of interest rule for 18 months in a brief it filed in a Minnesota court.
The Best Interest Contract exemption (BICE) due to become effective 1/1/18 could now be postponed until 7/1/19. The delay would have to be reviewed and approved by the Office of Management and Budget (OMB).
While some consumer advocacy groups stated that the delay was too long other industry groups were in favor of the delay.
On June 9th, portions of the DOL went into effect as planned to require third parties acting as a fiduciary under a new definition in their client’s best interest under impartial conduct. But the BICE allowed advisors to receive, for example, variable compensation with required disclosure.
The DOL rule did not change the fiduciary status of 401k plan sponsors but it had a dramatic effect on advisors and providers potentially changing the relationship and the agreement. In 401kTV’s new column “Ask the Lawyer” noted ERISA counsel Carol Buckman wrote:
The Rule affects those who give or may give investment advice, such as brokers, advisors and your plan provider’s employees. However, as a plan fiduciary, you are responsible for monitoring those people and you need them to be compliant. In addition, you need to know whether your providers are cutting back on their services in order to avoid being classified as fiduciaries under the new Rule or whether they are required to put your participants’ interests first. The Rule can even affect your own HR employees, who could become fiduciaries if they give advice to participants.
While the rule in general and the BICE specifically will have more impact on IRAs than defined contribution plans, experts are predicting that a significant percentage of advisors not able to work as a fiduciary in 401k and 403b plans will be squeezed out.
The delay and the potential emasculation of the BICE will slow and potentially mute that process leaving it up to plan sponsors to determine, first, if their advisor acting as a fiduciary and, secondly, if not do they want a fiduciary advisor where conflicts are eliminated, not disclosed, and that their compensation does not vary by the product they recommend.
