Investment Fiduciaries Must Comply with Its BIC Exemption and Principal Transaction Requirements Until New Regs Are Passed

On Monday, May 7, the Department of Labor issued a “field bulletin” to industry stakeholders stating that it would not pursue enforcement actions against investment advice fiduciaries “who are working diligently and in good faith to comply” with the BIC exemption and principal transaction exemption requirements of its much debated “fiduciary rule.”  This reprieve will be in effect until new regulations are put into place at some future date.

As discussed in recent blog posts, in March the rule had been overturned by the 5th Circuit Court of Appeals (Texas, Louisiana, and Mississippi), which stated that the rule represented a regulatory overreach by the DOL.  The Appeals Court subsequently rejected a petition by AARP and attorneys general of three states to allow them to intervene in the case, and it rejected their request that the court’s ruling be heard by all the 5th Circuit judges.  The DOL declined to appeal the case, which left the rule’s status as well as the status of investment professionals, in limbo.

The field bulletin was published in an effort to guide the industry as well as firms that have changed their policies based on the enactment of the rule by the Obama administration in 2016.  In addition, the DOL acknowledges that there is significant confusion among financial services firms and professionals in the wake of the Appeals Court decision.  The DOL stated that while it intends to provide

appropriate guidance in the future, it is aware that uncertainty about prohibited transactions by investment adviser fiduciaries could disrupt existing investment advice arrangements to the detriment of retirement plans, retirement investors and financial institutions and that many firms have devoted significant resources to comply with the BIC exemption and the principal transactions exemption and may prefer to continue to rely upon the new compliance structures.

In sum, the DOL stated that it believes that this temporary enforcement relief is in the best interest of retirement plan fiduciaries and participants, as well as IRAs and IRA owners.  Broker/dealers should ensure that they are complying with the rule to the best of their abilities and talk to their compliance professionals when in doubt.