PLANADVISER - March/April 2018 - 55

compliance consult
Enforcement
Of the DOL Rule
Complying with the impartial conduct standards
THE RECENT administrative complaint brought by the
Enforcement Section of the Massachusetts Securities Division
against a broker/dealer (B/D) has clearly gotten advisers'
attention. Whether or not you agree with the premise of the
action or the authority of the Massachusetts Enforcement
Section, it reminds us that the Department of Labor (DOL)'s
policy of temporary enforcement relief is not the same as a
" no enforcement " policy.
Advisers should not assume they
needn't comply with the impartial
conduct standards prior to July 1, 2019.
Indeed, the DOL states the opposite in
its guidance. In addition, it seems other
regulators may be willing to make sure
advisers are at least trying to comply.
In Field Assistance Bulletin (FAB)
The intervention by state regulators into the enforceThe
intervention
by state
regulators into
2017-02, the DOL said it will not pursue
claims against fiduciaries or treat them
as being in violation of the fiduciary duty
rule and related exemptions so long as
they " are working diligently and in
good faith to understand and come into
compliance with the fiduciary duty rule
and exemptions. " In extending the applicability
date of certain provisions of
the prohibited transaction exemptions
(PTEs) to July 1, 2019, the DOL restated
its temporary enforcement policy and
provided, " as the department reviews the compliance
efforts of firms and advisers during the transition period, it
will focus on the affirmative steps that firms have taken to
comply with the impartial conduct standards and to reduce
the scope and severity of conflicts of interest that could lead
to violations of those standards. "
In other words, the DOL stated that it may investigate
the enforcement
of the DOL's
PTEs certainly
complicates
the compliance
landscape for
advisers.
ment of the DOL's PTEs certainly complicates the compliance
landscape for advisers. In its administrative complaint,
the enforcement section pointed to its broad authority under
Massachusetts law to require broker/dealers to conform to
compliance procedures established by their firm. It made
this claim even where such procedures were established for
purposes of complying with the DOL's
regulation and exemptions.
The enforcement section may not
be successful. There are questions here
regarding
federal
pre-emption
and
whether the firm did, in fact, comply
with its own policies and procedures as
required under the above-described DOL
guidance. However, this action certainly
raises the issue of whether other state
regulators may follow suit. Given that
several states are considering the enactment
of laws or regulations imposing
fiduciary standards on advisers, regulators
within those states and others may
follow the lead of Massachusetts.
Finally, advisers should consider the
role that the Securities and Exchange
Commission (SEC) and FINRA [Financial
Industry Regulatory Authority] may
play in the enforcement of the DOL's rule
and related exemptions. Investigators from both agencies
have recently asked all retirement plan advisers to present
their policies and procedures related to compliance with the
impartial conduct standards.
It remains to be seen what these regulators will do with
advisers to make sure they are working diligently and
in good faith to comply. Notably, the DOL's definition of
" investment advice " has been in full effect since June 9, 2017,
and, therefore, advisers are likely acting as fiduciaries in a
broader set of circumstances. This is particularly the case
where rollover distribution recommendations are made.
Thus, while the DOL has no enforcement jurisdiction
with regard to recommendations within individual retirement
accounts (IRAs), it could take the position that recommendations
with regard to rollovers from Employee Retirement
Income Security Act (ERISA) plans to IRAs are fiduciary
acts under ERISA that squarely fall within its enforcement
jurisdiction and under its liability provisions.
this information, but having no policies and procedures
likely will not be viewed favorably. Further, even if neither
of the two agencies believes it has enforcement jurisdiction
in this regard, the SEC has entered into an informationsharing
agreement with the DOL. In the past several years,
when the SEC had questions about an adviser's compliance
with ERISA, it has referred cases to the DOL.
David Kaleda is a principal in the fiduciary responsibility practice
group at Groom Law Group, Chartered, in Washington, D.C. He has
an extensive background in the financial services sector. His range of
experience includes handling fiduciary matters affecting investment
managers, advisers,
broker/dealers,
insurers, banks and service
providers. He served on the Department of Labor ERISA Advisory Council
from 2012 through 2014.
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PLANADVISER - March/April 2018

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