On April 4, 2017, the U.S. Department of Labor issued a final rule postponing applicability of the conflict of interest rule and related exemptions for sixty days, until June 9, 2017. The stated purpose of the extension is to allow more time to: (i) complete the examination required by President Trump’s February 3, 2017 memorandum, which focuses on the rule’s impact on access to retirement products, advice, and information (see our blog here); and (ii) consider possible changes with respect to the conflict of interest rule and related exemptions based on new evidence or analysis developed pursuant to the examination. The Department stated that it received 193,000 comment and petition letters expressing views on whether it should grant the delay. Its 63-page release includes a discussion of the comments and hints of “a more balanced approach than simply granting a flat delay and all associated obligations for a protracted period.”

In addition to the general 60-day delay, the Department has delayed most of the requirements for the best interest contract and other new exemptions through January 1, 2018.

In setting separate applicability dates, the Department distinguished between (i) the rule on fiduciary status (who is a fiduciary) and the “Impartial Conduct” standard (acting in the client’s best interest), and (ii) the more onerous requirements of the various exemptions. The Department hinted that it might let the rule on fiduciary status and the Impartial Conduct standard go into effect as early as June 9th. In fact, the Department stated:

“[T]here is fairly widespread, although not universal, agreement about the basic Impartial Conduct Standards, which require advisers to make recommendations that are in the customer’s best interest (i.e., advice that is prudent and loyal), avoid misleading statements, and charge no more than reasonable compensation for services (which is already an obligation under ERISA and the Code, irrespective of this rulemaking.”

The Department further stated that it “finds little basis for concluding that advisers need more time to give advice that is in the retirement investors’ best interest and free from misrepresentations in exchange for reasonable compensation.”

In contrast, the Department observed that the onerous requirements for the various exemptions – including the “best interest contract,” which would create a private right of action for IRA clients to sue their advisers over prudence and loyalty – can lead to increased compliance costs in a way that reduces access to retirement products, advice, and information. The Department emphasized a “compliance first” policy, whereby the Department intends to focus more on assistance in eliminating conflicts and improving compliance more generally than on citing violations and imposing penalties.

The Department is continuing to accept comments on the substance of the fiduciary rule and related exemptions: the formal comment period ends on April 17, 2017, but the Department stated that it will be open to helpful comments even after that date.

In sum, the message seems to be that the Department is not leaning toward tossing the rule in its entirety or leaving the fiduciary standard to the SEC, but it remains open to analysis of the rule’s impact and thoughtful suggestions for how to reduce conflicts of interest without unduly burdening the retirement advice industry.