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DOL Issues First of Three FAQs on New Fiduciary Standard

The Department of Labor’s new fiduciary ruling has significantly impacted how financial advisers and brokers will managed retirement accounts in 2017.

On October 27, 2016, the U.S. Department of Labor (“DOL”) issued initial guidance on its upcoming conflict of interest rule scheduled to become effective on April 10, 2017. The DOL issued the guidance in the form of FAQs with the first related to the rule’s exemptions, such as the best-interest contract exemption and prohibited-transaction exemption. These exemptions outline how brokers are able to continue selling certain investment products while receiving variable compensation such as commission and 12b-1 fees.

This is the first of three rounds of guidance to be published by DOL prior to the effective dates of the new rules. This first set of FAQs addresses how the DOL will implement the new rule. Financial advisers and institutions will have a transition period with fewer conditions until January 1, 2018, according to the FAQ. During the transition period, financial institutions and advisers must comply with “impartial conduct standards” ensuring that advice is in the best interest of the investor, and not the firm. Financial institutions must also inform clients of the firm’s fiduciary status and describe material conflicts of interest during the transition period, per the FAQ.

If you have questions about this Alert, please contact Daniel G. Viola at 212.573.8038 or dviola@sglawyers.com.

The FAQ is available on the DOL’s website at: https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/coi-rules-and-exemptions-part-1.pdf

Cheryl Spratt