Category: prohibited transaction


Interesting Angles on the DOL’s Fiduciary Rule #31

Posted on December 22, 2016, by Fred Reish in BICE, Broker-Dealers, DOL Activity, fiduciary, prohibited transaction, prudent. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #31

“Un-levelizing” Level Fee Fiduciaries

This is my 31st article about interesting observations concerning the Department of Labor’s fiduciary rule and exemptions. These articles also cover the DOL’s FAQs interpreting the regulation and exemptions.

In the last article I posted, I discussed the three meanings of “Level Fee Fiduciary.” This article discusses the kinds of payments or benefits that will “un-levelize” a Level Fee Fiduciary.

As a starting point, the definition of compensation, for these purposes, includes any money or things of monetary value. So, it covers both cash and non-cash amounts. However, as the DOL explains, it must be directly or indirectly connected to a recommendation:

The term ‘‘fee or other compensation, direct or indirect’’ means . . . any explicit fee or compensation for the advice received by the person (or by an affiliate) from any source, and any other fee … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #30

Posted on December 15, 2016, by Fred Reish in BICE, DOL Activity, fiduciary, prohibited transaction. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #30

Three Kinds of Level Fee Fiduciaries . . . and What’s A “Level Fee?”

This is my 30th article about interesting observations concerning the Department of Labor’s fiduciary rule and exemptions. These articles also cover the DOL’s FAQs interpreting the regulation and exemptions.

The DOL’s use of the phrase “Level Fee Fiduciary” is creating a lot of confusion about the application of the new fiduciary regulation and the Best Interest Contract Exemption (BICE). This article, and the next one, will try to dispel some of that confusion.

The label “Level Fee Fiduciary” has been used for many years for one meaning, but BICE has used it for a different purpose and, depending on your reading, a different definition.

Historically, Level Fee Fiduciary referred to a fiduciary adviser whose compensation was level or, at least, levelized. What’s the different between level and levelized? “Level” refers … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #29

Posted on December 9, 2016, by Fred Reish in BICE, DOL Activity, fiduciary, prohibited transaction, prudent. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #29

Capturing Rollovers: What Information is Needed?

This is my 29th article about interesting observations concerning the Department of Labor’s fiduciary rule and exemptions. These articles also cover the DOL’s FAQs interpreting the regulation and exemptions.

The Department of Labor’s fiduciary regulation provides that a recommendation to take a distribution from a plan, and to roll the money over to an IRA, is a fiduciary act. As a result, the recommendation must be prudent and cannot result in a prohibited transaction. However, a prohibited transaction almost automatically occurs, since an adviser typically makes higher fees in the IRA than from the plan (even where the adviser is providing services to the plan). As a result, an exemption is needed, even if the recommendation is otherwise prudent. Fortunately, the Level Fee Fiduciary provision of the Best Interest Contract Exemption (BICE) provides the framework for … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #26

Posted on November 1, 2016, by Fred Reish in BICE, Broker-Dealers, DOL Activity, fiduciary, prohibited transaction, Service Providers. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #26

Reasonable Compensation for IRAs: When and How Long?

This is my twenty-sixth article about interesting observations concerning the fiduciary rule and exemptions.

This article is a little different than most of my previous posts. However, it is equally as important. To get to the point, I am writing this article about reasonable compensation for advice to IRAs because of a common misunderstanding about the requirement.

In the last month or two, I have seen a number of articles and heard several comments to the effect that it will be difficult to determine reasonable compensation for IRAs because the rule is so new. Stated a little differently, the point is that the reasonable compensation requirement for IRAs will first become effective on April 10, 2017. That is not correct.

Section 4975(c)(1)(C) provides that the “furnishing of . . . services . . . between a … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #24

Posted on October 20, 2016, by Fred Reish in BICE, Broker-Dealers, DOL Activity, fiduciary, prohibited transaction, prudent, Registered Investment Advisers, RIA. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #24

The Meaning of Differential Compensation Based on Neutral Factors

This is my twenty-fourth article covering interesting observations about the fiduciary rule and exemptions.

The DOL’s fiduciary “package” consists of a regulation that expands the definition of advice and exemptions, or exceptions, from the prohibited transaction (PT) rules. If a recommendation by a fiduciary adviser does not constitute a PT (e.g., does not affect the adviser’s compensation, or that of an affiliate, and does not cause a payment from a third party), no exemption is needed. However, if the fiduciary recommendation causes a PT, an exemption must be used – and most often that will be BICE – the Best Interest Contract Exemption. Therein lies the rub . . . the compensation of the financial institution (e.g., the broker-dealer) and the adviser are regulated by BICE.

Under BICE, the compensation of broker-dealers can be … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #23

Posted on October 11, 2016, by Fred Reish in DOL Activity, fiduciary, prohibited transaction, prudent, Registered Investment Advisers, RIA. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #23

This is my twenty-third article about interesting observations concerning the fiduciary rule and exemptions.

When the definition of fiduciary advice is expanded on April 10, 2017, the investment and insurance recommendations of a much larger group of advisers will be classified as fiduciary advice and will, as a result, increase the focus on financial conflicts of interest (which ERISA and the Internal Revenue Code refer to as “prohibited transactions,” or PTs). My suspicion is that, for most ERISA retirement plans, there will not be a great impact on advisers—because, to a large degree, advisers to retirement plans already are acknowledged fiduciaries. (To be fair, though, there will be some impact . . . particularly on smaller plans, where some insurance companies and broker-dealers have, in the past, taken the position that their advisers are not fiduciaries. Nonetheless, based on my recent … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #22

Posted on October 4, 2016, by Fred Reish in BICE, DOL Activity, fiduciary, prohibited transaction. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #22

This is my twenty-second article about interesting observations concerning the fiduciary rule and exemptions.

While the application of the new fiduciary rule and prohibited transaction exemptions to broker dealers and investment advisers is fairly obvious — if not fully understood, there has been little in the way of discussion about its application to banks. This post highlights some of those issues.

In a prior Angles article, I talked about how the fiduciary rule applies to referrals of advisers and how the prohibited transaction rules impact solicitors’ fees (see Angles No. 12). There is a similar issue for banks. For example, it appears to be a fairly common practice for employees at bank branches to recommend that customers set up IRAs and put the money into certificates of deposit, and for the bank employees to receive bonuses for the IRAs investments in the … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #18

Posted on September 7, 2016, by Fred Reish in BICE, DOL Activity, fiduciary, prohibited transaction, prudent. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #18

As advisers who work with ERISA-governed retirement plans already know, an adviser’s compensation cannot be more than a reasonable amount. Because of the new fiduciary advice regulation, and the associated prohibited transaction exemptions (84-24 and the Best Interest Contract Exemption (BICE)), that requirement is being imposed on investment and insurance recommendations to IRAs. Interestingly, under the Internal Revenue Code (section 4975(d)(2)), it is already a prohibited transaction for an adviser to earn more than reasonable compensation from an IRA. However, because of lack of enforcement by the IRS, that requirement is often overlooked. As evidence of the fact that it is overlooked, think about the lack of benchmarking or similar services to help advisers determine if their compensation from an IRA is reasonable. But, that is about to change.

To appreciate the “reasonable compensation” requirement, a person needs to understand that … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #12

Posted on July 14, 2016, by Fred Reish in DOL Activity, fiduciary, prohibited transaction. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #12

This is my twelfth article about interesting observations “hidden” in the fiduciary regulation and the exemptions.

The DOL has long taken the position that the recommendation of a discretionary investment manager is a fiduciary act. (At least one court has adopted that position – in a case involving investments with Madoff.)

While I am not aware of any guidance or litigation about potential prohibited transactions because of payments to persons who recommend investment managers (e.g., solicitor’s fees), from a legal perspective, if the person making the referral is a fiduciary and that person receives a fee, it may be a prohibited transaction under ERISA and the Internal Revenue Code.

To further complicate matters, when the new fiduciary rule becomes applicable on April 10, 2017, the definition of “fiduciary” will cover someone who makes referrals to both discretionary investment managers and non-discretionary investment advisers … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #10

Posted on June 21, 2016, by Fred Reish in DOL Activity, fiduciary, prohibited transaction, Uncategorized. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #10

This is my tenth article about interesting observations “hidden” in the fiduciary regulation and the exemptions.

When the new fiduciary advice regulation is applicable on April 10, 2017, a recommendation to a participant to take a distribution and rollover to an IRA will be a fiduciary act. It doesn’t matter if the adviser has a pre-existing relationship with the plan or the participant, or not.

Some RIA firms and broker-dealers focused on a similar issue when FINRA issued its Regulatory Notice 13-45 in late 2013. As that notice explained, distribution recommendations are investment recommendations (and thus, in the case of FINRA, are subject to the suitability standard), but distribution education is not an investment recommendation. To avoid the additional compliance work (and possibly prohibited transactions), many RIA firms and broker-dealers adopted a distributions education approach using 13-45 as the model. While the … Read More »




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