A First Look at the DOL's Revised Fiduciary Rule
UPDATE: On April 6, 2016, the Department of Labor released the finalized rule. Read about the final version of the rule here.
April 20, 2015 -- "Times have changed" said U.S. Secretary of Labor Tom Perez, and "the regulatory structure must also change."
With that, he introduced the DOL's proposed new fiduciary rule which will expand the types of retirement investment advice covered by fiduciary protections.
Who Will Be a Fiduciary
Under DOL's proposed definition, any individual receiving compensation for providing advice that is individualized or specifically directed to a particular plan sponsor, plan participant, or IRA owner for consideration in making a retirement investment decision will now be a fiduciary -- the suitability standard is out.
Such decisions can include, but are not limited to, what assets to purchase or sell and whether to rollover from an employer-based plan to an IRA. The fiduciary can be a broker, registered investment adviser, insurance agent, or other type of adviser.
As a fiduciary the adviser must provide impartial advice in their client's best interest and cannot accept any payments creating conflicts of interest unless they qualify for a new exemption intended to assure that the customer is adequately protected.
At least two areas that will not make one a fiduciary are:
Best Interest Contract Exemption
Under ERISA and the Internal Revenue Code, individuals providing fiduciary investment advice, including those covered by this proposed rule, to plan sponsors, plan participants, and IRA owners are not permitted to receive payments creating conflicts of interest without a prohibited transaction exemption (PTE).
The proposed rule creates a new PTE, the "best interest contract exemption." This new PTE will allow firms to continue to set their own compensation practices so long as they, among other things, commit to putting their client's best interest first and disclose any conflicts that may prevent them from doing so.
Common forms of compensation in use today, such as commissions and revenue sharing, will be permitted under this exemption, whether paid by the client or a third party such as a mutual fund.
To qualify for the new "best interest contract exemption," the company and individual adviser providing retirement investment advice must enter into a legally enforceable contract with the plan sponsor that:
Rick Meigs, President, 401khelpcenter.com
The DOL has provided more information here.
Abstract: The Department of Labor's anticipated rule on conflicts of interest (aka, the Fiduciary Rule), is now available. Fi360 has prepared this five page an executive summary covering the basics of the rule.
Abstract: The DOL published its long awaited proposed rule addressing conflicts of interest in retirement advice. This is an overview of the proposed rule prepared by the Wagner Law Group.
Abstract: The retirement plan industry has been waiting for an updated definition of fiduciary regulation from the DOL since 2010. On April 14, 2015, we got it and, at first glance, it's a game-changer. The purpose of this article is to provide a technical, "first glance" overview of the proposal and some early thoughts about possible ramifications.
Much of the information for this article was taken directly from the material provided by the Department of Labor.