DOL Fiduciary Duty RC: Rule Implementation
ICI information on Rule Implementation.

Overview

The Department of Labor (DOL) announced its final fiduciary rule in April 2016. The rule became applicable on June 9, 2017, after the DOL issued a 60-day delay of the applicability date. In March 2018, the United States Court of Appeals for the Fifth Circuit issued a decision to vacate the rule. The court issued a mandate certifying its decision on June 21, 2018, which effectively nullified the rule in its entirety.

Before the rule was vacated, ICI engaged in a variety of efforts to assist members with implementation of the rule. To assist funds and their intermediaries, ICI, with member input, developed a form of amendment for “clean shares” to assist members offering clean shares who wish to amend their agreements with intermediaries to clarify the intermediary’s role as agent.

In addition, ICI’s operations and advisory committees, which include funds, intermediaries, and related service providers, formed working groups to evaluate the operational impact of implementing the final rules. The working groups created common practice documents, checklists, and other resources in the following focus areas:

  • Back-Office Operations addressed the complexities of servicing investor accounts in the context of both level-fee account structures and the Best Interest Contract exemption (BICE).
  • Communications and Disclosures addressed touchpoints with investors within the fund, retirement plan recordkeeper, and intermediary organization, to suggest updated communication resources and strategies clearly representing each organization’s fiduciary status under the DOL rule. It also addressed fee disclosure considerations for fiduciaries operating under the BICE.
  • Custodial or Intermediary Resignations from Accounts addressed the operational effects of resignations that may occur as intermediaries realign business models to become compliant with the DOL rule. The working group examined the resignations by intermediaries as either intermediary of record on accounts, or as both retirement plan/individual retirement account (IRA) custodian and intermediary of record from accounts.
  • Product Structure addressed how existing share class attributes, features, and characteristics could be affected by the rule and describes considerations for creating DOL-compliant share classes.

Back-Office Operations

The Back-Office Operations Working Group addressed the complexities of servicing investor accounts in the context of both level-fee account structures and the Best Interest Contract exemption (BICE). Key topics included considerations and recommended practices in these areas:

  • The shifting of investor accounts into different product structures compliant with the DOL rule
  • Support of accounts that are grandfathered under the rule
  • Payment of intermediary compensation
  • Data needed to satisfy disclosure and ensure compliance with the rule

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Communications & Disclosures

The Communications and Disclosures Working Group addressed touchpoints with investors within the fund, retirement plan recordkeeper, and intermediary organization, to suggest updated communication resources and strategies that clearly represented each organizations’ fiduciary status under the rule. It also addressed fee disclosure considerations for fiduciaries operating under the Best Interest Contract exemption. Key topics included considerations and recommended practices in these areas:

  • Call center, including training, call monitoring, and scripting
  • Fund, retirement plan, and intermediary documents used to support accounts covered by the rule
  • Document and information retention policies
  • Noncash compensation and third-party fees

Custodial or Intermediary Resignations from Accounts

The Custodial and/or Intermediary Resignations Working Group addressed the operational effects of anticipated resignations by intermediaries as either intermediary of record on accounts, or as both retirement plan/individual retirement account (IRA) custodian and intermediary of record from accounts. Key topics included considerations and recommended practices in these areas:

  • Touchpoints for investor communication
  • Workflows to standardize information exchange between parties to facilitate the transition of responsibilities
  • Expected data needs and responsible parties
  • Use of new or existing automation in support of new account setup, share transfer, etc.

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