DOL “Fiduciary Rule” 2018-02-09T14:04:18+00:00

DOL 'Fiduciary Rule'

The DOL's 'Conflict of Interest' or 'Fiduciary' Rule represents the most sweeping DOL enactment since ERISA in 1974. Its implementation date was June 9, 2017.

The intent of the rule is to protect employers and employees by broadening the population of service providers (e.g., investment advisers, consultants, brokers, insurance agents, recordkeepers, third-party administrators, etc.) that must meet ERISA's “fiduciary” standard — putting their clients’ best interest before their own profits – in making investment recommendations.

Under the new rule, the fundamental threshold element in establishing the existence of fiduciary investment advice is whether a “recommendation for a fee” occurred. The new rule redefines a “recommendation” as any communication that would reasonably be viewed as a suggestion to engage in or refrain from taking a particular action. The more individually tailored the communication is to a specific advice recipient or recipients, the more likely the communication will be viewed as a recommendation, and thus trigger fiduciary standards of care.

Absent an exemption, it is a prohibited transaction under ERISA §406 for a fiduciary to either receive un-level compensation or provide conflicted advice. The new rule establishes a Best Interest Contract (BIC) exemption for plans whose fiduciaries manage under $50 million (in the aggregate) *that allows a fiduciary to receive un-level compensation (such as commissions) or provide conflicted advice (when the amount of the fiduciary's compensation is affected by the use of its authority in providing investment advice).  However, the existence of BIC does not mean that a recommendation is automatically in the client's best interests or even prudent. It also does not mean that all aspects of the exemption have been, or are being, met.

While the primary targets of the new rule are service providers, the DOL's new fiduciary rule creates a series of complicated fiduciary decisions that plan sponsors must make that will impact existing services and create fiduciary risks that plan sponsors may not fully understand.

For example, plan sponsors retain co-fiduciary responsibility and liability for the actions of other plan fiduciaries who do not comply with the law. As such, plan sponsors should consider whether it is comfortable receiving advice from an entity working within the BIC environment – are they familiar enough with the entity to trust them to fully meet the BIC requirements? In addition, plan sponsors must also be wary of all service provider communications that could be construed as a recommendation to a plan sponsor or plan participant where the potential for un-level compensation or conflicted advice exists and BIC may not have been implemented.

In times of significant regulatory changes, plan fiduciaries should consider the capabilities of their advisor to assist and support them with fiduciary compliance. Complete transparency and full disclosure are hallmarks of Waterfront Financial Group.  Waterfront Financial Group advisors serve as investment fiduciaries and stand ready to assist you.

*The applicability date of the Best Interest Contract Exemption has been delayed until July 1, 2019.  This and other provisions of the DOL Fiduciary Rule are under further review and are potentially subject to change.

Did you know?

  • The new fiduciary rules significantly expand the activities and roles that make someone a fiduciary.
  • Absent an exemption, it is a prohibited transaction under ERISA §406 for a fiduciary to either receive un-level compensation or provide conflicted advice.
  • Plan sponsors retain co-fiduciary responsibility and liability for the actions of other plan fiduciaries who do not comply with the law.
  • A plan's fiduciaries are personally liable for any losses resulting from fiduciary breaches.
  • A Best Interest Contract (BIC) exemption will be required for plans whose fiduciaries manage under $50 million that allow a fiduciary to receive un-level compensation or provide conflicted advice.
  • Receipt of required BIC paperwork is not enough to fully satisfy the exemption. Important aspects of the exemption are ongoing and must be reviewed by plan fiduciaries to ensure compliance.
  • The existence of BIC does not mean that a recommendation is automatically in the client's best interests or prudent.
  • The mere existence of needing BIC should trigger a plan sponsor to consider whether it wants to receive advice from an entity where the potential for conflicted advice exists.

Plan fiduciaries must also be wary of service provider communications that could be construed as a recommendation to a plan sponsor or plan participant.

Waterfront Financial Group serves as fiduciaries without caveat or exception and stands ready to assist you.

Is your advisor a salesperson, or a fiduciary? Fill out the form below to download a PDF you can use to start this assessment.

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Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

This material was prepared by rpag.com.