Service Providers Can Slow-Walk Disclosures Triggered by Fiduciary Rule

Paper Stack

Service providers that may or have become investment advisers under the Labor Department’s fiduciary rule needn’t rush to inform their pension plan customers of that new status, the DOL said.

In a set of frequently-asked-questions issued in August, the DOL said service providers should update their fiduciary status “as soon as practicable” after the fiduciary rule’s June 9, 2017, start date, even if it takes more than 60 days after that.

Service providers also can comply if they make a disclosure during the transition period that ends on Jan. 1, 2018, when the fiduciary rule is slated to take full effect, the DOL said.

The DOL issued the FAQs prior to its Aug. 30 notice of proposed amendments which, if finalized, delay certain fiduciary rule provisions by 18 months (see related story, Fiduciary Rule Exemptions Face Delay Under DOL Proposal).

Investment advisers subject to the fiduciary rule must act in their clients’ best interest when recommending investment products and strategies. Advisers meeting that standard may qualify for a best interest contract exemption allowing to them certain compensation arrangements that might otherwise be prohibited.

Timing Question

A 2012 DOL rule known as the 408b-2 regulation requires that service providers who will or reasonably expect to provide fiduciary investment advice services to their pension plan customers to disclose this change in their fiduciary status as soon as practicable but not later than 60 days after the provider is “informed” of the change.

Disclosure must be as soon as practicable if circumstances beyond the provider’s control prevent disclosure within 60 days.

For purposes of 408b-2, an existing service provider wouldn’t have been “informed” of a change in status under the fiduciary rule until the rule partially went into effect on June 9, the DOL said.

However, the DOL said, service providers face a “unique and extraordinary circumstance” beyond their control that makes a 60-day disclosure period “impractical and unreasonably short, at least for a significant percentage of affected service providers.”

The DOL attributed this circumstance to “the broad range of service providers who may have experienced changes in fiduciary status” because of the fiduciary rule along with “uncertainty regarding the substance and timing of the Department’s past decision on whether to delay the applicability date of the Fiduciary Rule and related exemptions.”

See related article, Fiduciaries Have Questions on Rule. The DOL Has Answers.


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