Phase Two, Dealing with Exemptions and Establishing Class-Action Right to Sue, Will See 18-Month Delay

The Department of Labor (DOL) is implementing portions of the Conflict of Interest rule into two phases.

Phase one took effect on June 9 and requires advisors and agents to act as fiduciaries, make no misleading statements, and accept only “reasonable” compensation. Still, opponents are far more concerned with phase two rules that establish a class-action right to sue.

The DOL has moved to delay phase two of the DOL Conflict of Interest rule by 18 months, until July 1, 2019. Phase two deals with exemptions; in particular, the Best Interest Contract Exemption (BICE), which requires a financial institution to accept liability for each contract and gives clients the right to sue over investment advice.

Documents have been with the Office of Management and Budget (OMB) to delay phase two from Jan. 1, 2018, until July 1, 2019. The OMB will review the submission for publication in the Federal Register, which, barring any complications, makes the delay official.

Without the latest delay, the BICE will be required to sell fixed indexed and variable annuities beginning Jan. 1, 2018.

In addition, the DOL said the delay will apply to two other exemptions, PTE 84-24 and PTE 2016-02. The latter exemption applies to advice to individual retirement accounts and employee benefit plans.

However, as of June 09, 2017 advisors must operate using the Impartial Conduct Standards. Additionally, “covered service providers” (CSP) under IRC 408(b)(2) must update their notices to explain the services they are providing as a fiduciary. The DOL in their FAQ provided leeway on the 60-day rule. However CSPs must provide notice as soon as practical.