On May 7, 2018, the DOL released Field Assistance Bulletin (FAB) No. 2018-02. This FAB addresses the DOL’s non-enforcement policy now that the Fiduciary Rule (the Rule) has been vacated by the U.S. Court of Appeals for the Fifth Circuit. As background, the Fifth Circuit vacated the Rule in a 2-1 decision in U.S. Chamber of Commerce v. DOL. We discussed that opinion in the March 20, 2018, edition of Compliance Corner.
The revocation of the Rule took place after the DOL failed to appeal the Fifth Circuit’s decision by May 7, 2018. In this FAB, the DOL acknowledges that the revocation of the Rule left many institutions uncertain about how advisors would avoid engaging in prohibited transactions when the Best Interest Contract Exemption (BICE) and other prohibited transaction exemptions (PTEs) that were created along with the Rule became null and void.
The FAB announces that the DOL will continue its non-enforcement policy related to the Rule. Specifically, the DOL won’t pursue any prohibited transaction claims against investment advisor fiduciaries who are “working diligently and in good faith to comply with the impartial conduct standards” set by the BICE and other PTEs. Those investment advisors can also choose to rely on any other available exemptions for relief. Interestingly, though, the FAB doesn’t address the rights or obligations of other parties; so there might still be private rights of action that can be pursued against advisors who offer conflicted advice.
This FAB makes it seem quite unlikely that the DOL is going to continue to pursue the Rule in its current form. Although they’d have until June 13, 2018 to appeal the Fifth Circuit’s decision to the U.S. Supreme Court, the DOL’s non-enforcement policy makes it seem that they won’t do so. Instead, the DOL has expressed that it will evaluate the need for additional prohibited transaction relief.
It’s also important to note that, in April, the SEC came out with its own proposed best interest rule, which incorporates a number of aspects of the Rule and the BICE. In fact, their rule requires registered investment advisers and broker-dealers to act in the best interest of their customers and to mitigate certain conflicts of interest.
Employer plan sponsors won’t see much change in anything now that the Rule has been revoked and the DOL has announced a non-enforcement policy. Many advisers and broker-dealers have already taken steps to comply with the Rule and likely won’t switch back to the processes in place before the Rule. We’ll continue to follow this issue, though, and we’ll share any additional information that might affect plan sponsors.
FAB 2018-02 »