The DOL Fiduciary Rule: Don't misinterpret the word "delay"

September 26, 2017

A change in fiduciary conduct standards has taken place, regardless of what the headlines may suggest.

The Department of Labor’s (DOL) Fiduciary Rule requires fiduciary conduct standards for financial advisors who manage any retirement account where the DOL has jurisdiction. This includes advisors who provide investment recommendations to plan sponsors, ERISA plan participants and IRA owners.

On June 9, 2017, the DOL’s Fiduciary Rule became applicable, and financial advisors and broker-dealer firms entered a transition period where it suffices to follow DOL’s impartial conduct standard. This standard requires acting in the best interest of the client, charging reasonable fees and avoiding misrepresentation. But on August 9, 2017, the DOL filed a Notice of Proposed Amendments to make the transition period 18 months longer than the current January 1, 2018 end date, extending it to July 1, 2019.

The DOL stated that “The primary purpose…is to give the Department of Labor the time necessary to consider possible changes… ”1 This makes sense given that the DOL received nearly 200,000 comments and petitions in response to a previous proposal.2 This was followed by a request for information published in the Federal Register, which generated over 60,000 comments.3

Another reason the agency may want more time is that in public forums and in testimony before Senate subcommittees, the heads of the DOL and Securities and Exchange Commission (SEC) have stated that they hope to better align both agencies’ fiduciary standards. An extension would give them more time to work on possible revisions to help them reach this goal.

Go deeper than the headline

It’s not uncommon to read headlines like “DOL Fiduciary Rule Delayed 18 Months,” or “Fiduciary Rule Likely to See Most Substantial Delay Yet.” But headlines can be easily interpreted to mean something other than what’s actually happening.

When the DOL filed for a longer transition period, most news outlets got the story right — but not all of them. Most of the stories do eventually explain that the DOL is required by the Administrative Procedures Act of 1946 to go through a series of steps before they can actually make a change. In other words, on August 9, 2017, they made a proposal to extend the transition period, not a final decision. But that point was often a few paragraphs (or more) into the story.

Further, the word “delay” can be misconstrued. Context is everything. An advisor could interpret the delay to mean that the fiduciary rule is not applicable and that they don’t have to follow it. But that isn’t the case. Remember: The fiduciary rule has been in effect and applicable since June 9, 2017, and the DOL’s subsequent proposal for a delay does nothing to change that fact.

It’s more accurate for financial advisors to think of the DOL’s proposal in terms of an extension of the transition period that’s already in place. A longer transition period would mean that advisors must continue to act in the best interest of the client, charge reasonable fees and avoid misrepresentation. However, advisors would not need to use the Best Interest Contract Exemption until a later date.

Bottom line

Financial advisors who receive compensation for providing recommendations and financial advice to qualified plan sponsors, plan participants and IRA owners have been considered ERISA fiduciaries since June 9, 2017, and they will continue to be so even with an extension of the transition period.


1 Federal Register /Vol. 82, No. 168 /Thursday, August 31, 2017 / Proposed Rules; Department of Labor 29 CFR Part 2550 page 41365

2 The notice was for a 180 delay of the applicability date; the Office of Management and Budget approved a 60 day delay.

3 Federal Register /Vol. 82, No. 168 /Thursday, August 31, 2017 / Proposed Rules; Department of Labor 29 CFR Part 2550 page 41366

Columbia Threadneedle Investments does not offer tax or legal advice. Consult with a tax advisor or attorney.