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 Clarke, of counsel with
the Wagner Law Group.
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
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,
Clarke 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.
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 Clarke. “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.”
a result of the rule, some advisers are in the process of selling their wealth
management businesses, according to Clarke. Others are hiring certified
financial planners and buying wealth management companies, while some are
partnering with third-party wealth management providers.
Things to do now
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 Clarke. They should also identify
all instances of variable compensation.
should develop a compliance strategy with Employee Retirement Income Security
Act (ERISA) counsel—whether they are going to use best interest contracts
(BICs), are going to move to fee levelization, whether they are going to use
the same business model or a different one. “Your business model will depend on
your capability—the people you have or will have—and your business growth
strategy,” he told attendees. Adviser firms will also have to train employees.
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,” Clarke said. As of January 1, 2018, advisers should use a
full-blown BIC for IRA and ERISA plan clients. Negative consent is permitted,