DOL Fiduciary Deadline is coming, what compliance is essential?

The decision earlier this week by Labor Secretary Acosta to not further delay the implementation of the DOL Fiduciary standards on June 9th. This is creating a huge push for compliance guidelines for annuity sales staff, annuity brokers and structured settlement experts. Ok, maybe not the structured settlement experts, they are exempted from just about all suitability and regulatory oversight other annuity purveyors are being held to. That said, these standards will very likely become the defacto expectation regarding duty of care to clients and structured settlement professionals would be wise to immediately adapt their business practices to adhere to them. 

The future. Photo Credit Shutterstock

This morning ThinkAdvisor published what I think is a very handy check list of dates, guidelines and duties related to how and where this new Fiduciary Standard is being applied. It is as follows:

1. Applies to IRAs: The rule applies to investment advice concerning IRAs, ERISA plans, and plans covered by Section 4975 of the Tax Code.
2. Best interest standard starts June 9: Beginning June 9, financial institutions and advisors to covered plans must provide advice in the retirement investor’s “best interest,” which includes a duty of prudence and loyalty.
3. BICE compliance starts Jan. 1: The extensive compliance requirements of the best interest contract exemption, which would apply to non-level fee products, are not in force until Jan. 1, 2018.
4. DOL expects changes by Jan. 1: During the transition period (June 9-Jan. 1), Labor will collect additional information from the industry to determine how compliance practices such as the use of mutual fund “clean shares” should reshape the rule.
5. Proprietary products with commissions permitted: During the transition period, firms can recommend proprietary products with commissions so long as they satisfy the best interest standard.
6. Need policies and procedures: Labor expects firms to adopt policies and procedures necessary to ensure compliance with the best interest standard.
7. Robo-advisors can rely on BICE: Robo-advisors may rely on the BICE during the transition period to ensure compliance with the rule.
8.  Investment advice narrowly defined: Investment advice, for purposes of the rule, does not include plan information or general financial, investment and retirement information.
9. Can rely on written representations from intermediaries: The rule does not apply if an independent fiduciary provides written representations (including negative consent) that the fiduciary is a bank, insurance company, BD, RIA, or independent fiduciary managing at least $50 million.
10. DOL will focus on compliance over enforcement: Labor says it will prioritize compliance over enforcement during the transition period so long as firms work diligently and in good faith to comply with the rule. ( Source: ThinkAdvisor.com, published 5/26/17)

In short, we are entering a world where a ton of annuity sales used in IRA roll overs by the Fixed Index Annuity markets is being swept into a standard that requires full disclosure of commissions, conflicts and making sure the recommendation is demonstrably in the best interest of the client. There are a lot of effective compliance tools and courses developed for this transition, I strongly suggest structured settlement professionals and structured settlement planners adopt them on the same schedule and be ahead of the curve instead of behind it.