WASHINGTON—With the Department of Labor (DOL) announcing a “phased implementation” of its fiduciary rule through Jan. 1, it raises the question of what will be required of credit unions between the June 9 effective date and then?
Starting June 9, the rule’s amended definition of “fiduciary investment advice” will apply, and the Best Interest Contract (BIC) exemption and Principal Transactions Exemption will become available to fiduciary advisers, CUNA explained. “However, for a transition period extending until Jan. 1, 2018, fewer conditions will apply to financial institutions and advisers that want to rely upon the exemptions.”
During the transition period, financial institutions and advisers must comply with the “impartial conduct standards,” consumer protection standards that ensure that advisers adhere to fiduciary norms and basic standards of fair dealing, CUNA explained.
According to CUNA, the standards specifically require advisers and financial institutions covered by the rule to:
- Give advice that is in the “best interest” of the retirement investor. This standard has two chief components: prudence and loyalty:
- Under the prudence standard, the advice must meet a professional standard of care as specified in the text of the exemption;
- Under the loyalty standard, the advice must be based on the interests of the customer, rather than the competing financial interest of the adviser or firm.
- Charge no more than reasonable compensation; and
- Make no misleading statements about investment transactions, compensation and conflicts of interest.
Full compliance with all of the exemptions’ conditions will be required on Jan. 1, 2018, absent further action by the DOL, CUNA said.
“These conditions include, among other things, requirements to execute a contract with IRA investors with certain enforceable promises, make specified disclosures, and implement specified policies and procedures to protect retirement investors from advice that is not in their best interest,” CUNA noted.