FIS Blog

Best Interest Contract Exemption: Hedging Against the Possibility of Changes to the Department of Labor Fiduciary Rules

Larry Goldbrum | Thursday, December 15, 2016

The fate of the Department of Labor (DOL) fiduciary rules is clouded in uncertainty because of the presidential election win by Donald Trump. The new rules will become applicable — or as a practical matter, effective — on April 10, 2017. However, Mr. Trump will become President on January 20, 2017, and there are many who believe that the incoming administration will repeal, modify or delay the new rules. Without a clear statement from Mr. Trump, most industry professionals advise the regulated community to proceed as if the rule will apply as originally expected on April 10. But are there ways to minimize certain compliance costs under the Best Interest Contract (BIC) exemption while the uncertainty is sorted out?

The short answer is yes. Fortunately, the DOL staggered the applicability dates of many of the more onerous provisions of the BIC exemption in the final rules. The more cumbersome requirements are not applicable until January 1, 2018. Consequently, investment fiduciaries could focus their compliance efforts on the April requirements and defer compliance with the others until April when more may be known about the fate of the rules and who will lead the Employee Benefits Security Administration.

BIC Exemption Requirements Applicable on April 10, 2017

  • Best Interest Standard - The financial institution and advisor must act in the best interest of the plan, participant or investor.
  • Reasonable Compensation - The financial institution, its affiliates and the advisor must receive no more than reasonable compensation.
  • No Misleading Statements - The financial institution and the advisor must not make any materially misleading statements.
  • Abbreviated Disclosures – The financial institution must furnish certain abbreviated transition period disclosures . Notably, a written contract that may otherwise be required is not needed during the transition period.
  • BIC Exemption Officer - The financial institution must designate a BIC exemption compliance officer.
  • Records and Access - The financial institution must maintain records that enable a determination that the conditions of the exemption have been met, and such records must be reasonably available for examination by the DOL, IRS, plan fiduciaries, participants and certain other parties.

BIC Exemption Requirements Applicable on January 1, 2018

  • Full Disclosures and Contracts - All BIC exemption disclosures must be furnished and the written contract requirements (in the case of IRAs and other non-ERISA plans) must be satisfied, including the required warranties.
  • Web Disclosures - In addition to the disclosure and written contract requirements noted directly above, the financial institution must make certain additional web and transaction-based disclosures are published.
  • Policies and Procedures - The financial institution must have certain documentation, and written policies and procedures in place.
  • DOL Notice - The financial institution must notify the DOL of its intent to rely on the BIC exemption prior to receiving compensation.

As noted above, the January 1, 2018 requirements are among the most complex and potentially costly to implement. The additional time to comply originally provided by the DOL gives financial institutions the opportunity to prioritize their compliance efforts.


Tagged in: Fiduciary Rule, BIC Exemption, Banking and Wealth, Election, Trump

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