WASHINGTON (4/11/16)--The Credit Union National Association’s (CUNA) further analysis of the U.S. Department of Labor’s final fiduciary rule reveals a number of CUNA’s concerns have been addressed. The DOL finalized the rule last week, defining who is a “fiduciary” of an employee benefit plan, adding brokers and advisers providing advice to individual retirement accounts.
CUNA supports the goal of the rule to protect investors, but raised questions about lack of clarity surrounding the rule and potential regulatory burden issues in several comment letters and advocacy efforts to regulators and legislators.
While the final rule will add additional compliance burdens to credit union service organizations (CUSOs) and potentially credit unions, CUNA is pleased the DOL made several important modifications and improvements to the rule.
The final rule contains a significant improvement sought by CUNA to clarify the definitions of “education” and “advice".
"We believe this will help credit unions continue to have important conversations with their members about financial education, and allow them to provide general information about saving and planning for the future without fear of triggering the rule" said Leah Dempsey, CUNA's senior director of advocacy and counsel. "Nevertheless, it will be important for credit unions to review procedures for communications with members concerning IRAs and to review the compensation structure of any employees having those conversations to determine if the rule could somehow apply."
One improvement is an extension of the implementation date. Brokers will need to comply with certain aspects of the rule by April 2017 to take advantage of an exemption (see below), but the majority of the rule goes into effect Jan. 1, 2018.
The final rule contains a significant change by clarifying the definitions of “education” and “advice,” which will help credit unions continue to have conversations with their members about financial education. This will also allow credit unions provide general information about opportunities to save and plan for the future.
If credit union employees are not receiving fees or other compensation for recommending individual retirement, the rule will likely not be triggered. Credit unions should review their compensation structures to determine whether this is applicable.
The final rule also contains CUNA-requested clarifications on the Best Interest Contract Exception (BICE), which is only applicable to financial institutions that acknowledge fiduciary status, which would at the very least include CUSOs.
The BICE is simplified under the final rule, including adjusting the contract requirement to allow it to be incorporated into other account opening documents and can be entered into before or at the same time the recommended transaction is executed. This means that members would not immediately have to sign a contract upon entering into a conversation concerning investment advice, which was previously not clear in the proposed rule.
CUNA’s Removing Barriers Blog contains an in-depth look at these aspects of the final rule. With more than 1,000 pages in attachments to the rule, CUNA continues to analyze the rule and its complexities, and will release more information as it becomes available.