Reed Smith Client Alerts

Over the past year, the Department of Labor’s new Fiduciary Rule and Prohibited Transaction Exemptions have been the subject of tremendous activity and media coverage. With the Trump administration, the future of the Rule has become uncertain, leaving the financial services and insurance industries in the precarious position of not knowing exactly what to do to prepare for compliance. Although the future of this Rule remains a mystery, we are confident that significant litigation is on the horizon and will focus on industry efforts to prevent losses to retirement investors resulting from conflicted advice. This Alert outlines the key issues and suggests Best Practices to help companies lessen future litigation exposure.


On April 8, 2016, after a proposal and comment process, the DOL issued its new Rule and related PTEs under ERISA, and the Internal Revenue Code, governing advice given to retirement savers investing in qualified accounts that include ERISA plans and IRAs. A primary focus of this Rule is to protect retirement savers from risks associated with advisors receiving conflicted compensation. Under the Rule, the new Impartial Conduct Standards were set to become effective April 10, 2017. These Standards require that advisers and Financial Institutions provide investment advice in the Retirement Investor’s Best Interest; not recommend transactions that will result in more than reasonable compensation; and not make misleading statements to the Retirement Investor about recommended transactions. The new DOL publications also include the Best Interest Contract, or BIC exemption, which is the primary vehicle to allow advisers to continue to be paid commissions. The BIC exemption creates a private right of action and is considered the source of significant anticipated litigation, including class actions. The current deadline for issuing the BIC contracts is January 1, 2018.