October 28, 2021
Following requests by the IAA and others, the DOL has extended its grace period for compliance with its new Fiduciary Exemption through January 31, 2022 – and says it won’t enforce the specific documentation and disclosure requirements pertaining to rollovers until June 30, 2022.
When the DOL adopted the Fiduciary Exemption in the final days of the Trump Administration, it announced it “would not pursue prohibited transaction claims against investment advice fiduciaries who worked diligently and in good faith” to comply with the DOL’s Impartial Conduct Standards through December 20, 2021.
In announcing the new extension – in Field Assistance Bulletin (FAB) 2021-02 – the DOL noted firms’ concerns that they would incur significant costs with the December 20 date because it doesn’t align with their distribution cycle for disclosures. In addition, it complicates the Fiduciary Exemption’s retrospective review requirement for firms that want to perform that review on a calendar-year basis.
With respect to the requirement to document and disclose why a rollover is in a client’s best interest, the DOL FAB acknowledges that firms are developing tools to comply with these requirements, including working with third-party vendors to automate the documentation and analysis of rollover recommendations. It also acknowledges that firms may have challenges in obtaining retirement plan data from investors. To provide firms time to fully comply, the DOL will not enforce these requirements for rollovers through June 30, 2022.
“The IAA strongly supports the goal of ensuring that clients receive investment advice that is in their best interest,” the IAA told the DOL in a September letter. “Our members are diligently working to comply with the terms of (the Fiduciary Exemption) but would benefit from additional time to fully implement certain requirements.”
“Advisers are reviewing their processes, and in some cases are updating internal systems or using products from third-party vendors. Evaluating, selecting, testing, and implementing new technology, and updating related processes, policies, and procedures takes a significant amount of time under typical circumstances, and with COVID-19 these tasks are far more challenging and time consuming. We believe that additional time will allow our members to better serve investors by allowing them to carefully implement updated processes, policies, and procedures to comply with the exemption.”
The IAA’s letter also points out that in its FAQs, the DOL says it anticipates taking further regulatory and sub-regulatory actions that could include amending its investment advice fiduciary regulation, amending the fiduciary exemption, and amending or revoking some of the other existing class exemptions available to investment advice fiduciaries.
“While we do not believe it may be necessary for the (DOL) to take further action, if it plans to take any additional action, we believe it is appropriate to extend the [compliance deadline] in the interim so that firms will have regulatory certainty with respect to implementation of any new requirements.”
The IAA has held a number of member calls to discuss the DOL Fiduciary Exemption and presented a webinar on it earlier this year.
See News Release, US Department of Labor Announces Temporary Enforcement Policy on Prohibited Transaction Rules Applicable to Investment Advice Fiduciaries (Oct. 25, 2021), Field Assistance Bulletin 2021-02, Temporary Policy on Prohibited Transaction Rules Applicable to Investment Advice Fiduciaries (Oct. 25, 2021).
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