We are issuing the latest update to our recent Alerts regarding the final rules issued by the Department of Labor (“DOL”) with respect to fiduciaries under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the DOL’s Best Interest Contract Exemption (“BIC Exemption”) from ERISA’s prohibited transactions provisions. On February 3, 2017, President Donald J. Trump issued a Memorandum directing the Secretary of the DOL to undertake a review of the Fiduciary Rule (the “Memorandum”). Significantly, the Memorandum does not delay the Rule’s April 10, 2017 applicability date. Nor does the Memorandum address the Transition Period BIC Exemption requirements which are also scheduled to go into effect on April 10, 2017. Thus, the uncertainty regarding the ultimate fate of the Fiduciary Rule will inevitably grow as the applicability date continues to draw closer.

In the Memorandum, President Trump states that “one of the priorities of [his] Administration is to empower Americans to make their own financial decisions, to facilitate their ability to save for retirement and build the individual wealth necessary to afford typical lifetime expenses, such as buying a home and paying for college, and to withstand unexpected financial emergencies.” President Trump is directing a review of the Fiduciary Rule because, according to the Memorandum, the Rule “may significantly alter the manner in which Americans can receive financial advice, and may not be consistent with the policies of [President Trump’s] Administration.” As a result, President Trump has directed the Secretary of the DOL “to examine the [Fiduciary Rule] to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.” This review will require the DOL to “prepare an updated economic and legal analysis concerning the likely impact of the [Fiduciary Rule] ….” This analysis is required to consider the following three concerns:

(i) Whether the anticipated applicability of the [Fiduciary Rule] has harmed or is likely to harm investors due to a reduction of Americans' access to certain retirement savings offerings, retirement product structures, retirement savings information, or related financial advice;

(ii) Whether the anticipated applicability of the [Fiduciary Rule] has resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees; and

(iii) Whether the [Fiduciary Rule] is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.

In the event the DOL Secretary “makes an affirmative determination...” as to any of the foregoing concerns, or if the DOL Secretary “conclude[s] for any other reason after appropriate review…” that the Fiduciary Rule is inconsistent with President Trump’s priority regarding financial decision making, savings and wealth building, then the DOL Secretary is required to “publish for notice and comment a proposed rule rescinding or revising the [Fiduciary Rule] ….”

The Memorandum raises a number of issues. First, the applicability date for the Fiduciary Rule is currently April 10, 2017. While a draft of the Memorandum reportedly provided for a 180 day delay of the April 10, 2017 applicability date, the Memorandum as issued does not contain any delay of the applicability date. Further, the DOL has not yet made public whether it will seek to delay the April 10, 2017 applicability date. Thus, the April 10, 2017 applicability date remains in effect even as the DOL undertakes the mandated review of the Rule. Second, the Memorandum does not address the BIC Exemption. While the full BIC Exemption is not scheduled to go into effect until January 1, 2018, there are modified BIC Exemption requirements for the transition period from April 10, 2017 through January 1, 2018 that are scheduled to go into effect on April 10, 2017. No review of the BIC Exemption was ordered in the Memorandum. Like the Fiduciary Rule, the Transition Period BIC Exemption requirements thus remain in effect. Accordingly, unless and until the DOL delays implementation of the Fiduciary Rule and BIC Exemption, broker-dealers need to be prepared to comply with the April 10, 2017 applicability date for the Fiduciary Rule and the Transition Period BIC Exemption requirements.