pa|nc | PLANADVISER November/December 2016

2016 PLANADVISER National Conference

10 years of building profitable practices and evolving business models

By Lee Barney, John Manganaro and Rebecca Moore | November/December 2016
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Illustration by: Harry Campbell / Photography by: Josh Ritchie

The New Fiduciary Rule
The new fiduciary, or conflict-of-interest, rule from the Department of Labor (DOL) expands the type of advisers deemed to be fiduciaries to individual retirement accounts (IRAs) and retirement plans, according to Tom Clark, of counsel with the Wagner Law Group.

He told attendees of the 2016 PLANADVISER National Conference in Orlando that the new rule targets broker/dealers and registered representatives. It impacts registered investment advisers (RIAs) who offer rollover advice and managed account offerings.

With the new rule, the previous five-part test for determining whether someone is offering fiduciary advice is gone. Now, essentially, there is a two-part test, Clark said—whether someone makes a “recommendation” and is paid a fee. He added that the rule defines a “recommendation” as anything that can be reasonably viewed as a suggestion to engage in a particular course of action.

There are still questions about whether some things are considered “recommendations” under the new rule, and the DOL has promised some soft guidance about this, according to Clark. “Now recommending a provider is a fiduciary duty,” he said. “For example if an adviser does a [request for proposals (RFP)] and makes any quantitative statements about the results, that is a fiduciary act. If a wholesaler says, ‘I think you should use this adviser,’ that can fall into the category of recommendation.”

As a result of the rule, some advisers are in the process of selling their wealth management businesses, according to Clark. Others are hiring certified financial planners and buying wealth management companies, while some are partnering with third-party wealth management providers.

Advisers should identify all products and services offered to retirement plans and individual retirement accounts (IRAs) and confirm they have adequate supervisory control in place, according to Clark. They should also identify all instances of variable compensation.

The first deadline for the new rule is April 10, 2017. “A ‘transition’ BIC requiring disclosure should be used, and a BIC exemption officer should be designated,” Clark said.  As of January 1, 2018, advisers should use a full-blown BIC for IRA and ERISA plan clients.