Category: prudent


Interesting Angles on the DOL’s Fiduciary Rule #20

Posted on September 20, 2016, by Fred Reish in DOL Activity, fiduciary, prudent. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #20

As I discussed in an earlier post (Angles #7), the Best Interest Standard of Care has three parts: The prudent man rule; a requirement for individualization; and a duty of loyalty. Notice that none of the three parts requires that the “best” investment be recommended

Because of concerns that the fiduciary rule might be interpreted to require that a “best” investment requirement would apply, the Department of Labor explained in the preamble to the fiduciary regulation that:

In response to commenter concerns, the Department also confirms that the Best Interest standard does not impose an unattainable obligation on Advisers and Financial Institutions to somehow identify the single ‘‘best’’ investment for the Retirement Investor out of all the investments in the national or international marketplace, assuming such advice were even possible. 

So, if you ever had any doubts, it should be clear … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #19

Posted on September 13, 2016, by Fred Reish in DOL Activity, fiduciary, prudent, Uncategorized. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #19

This is my nineteenth article about interesting observations about the fiduciary regulation and the exemptions.

In an earlier post (Angles #16), I described how advisers could use the “hire me” approach to explain their services and fees without becoming a fiduciary for that purpose. Generally stated, under that approach, an adviser could explain his services and fees, but could not discuss specific products or platforms. In other words, if the adviser “suggested” specific products or platforms, the adviser would become a fiduciary even under “hire me.” The DOL explained that result in the preamble to the fiduciary regulation:

“An adviser can recommend that a retirement investor enter into an advisory relationship with the adviser without acting as a fiduciary. But when the adviser recommends, for example, that the investor pull money out of a plan or invest in a particular … 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 #15

Posted on August 9, 2016, by Fred Reish in BICE, DOL Activity, fiduciary, prudent. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #15

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

In my last post (Angles #14), I said that the prudent process requirement would apply to many, but not all, advisers. This article explains that statement.

ERISA does not apply to individual IRAs (but does apply to SEP and SIMPLE IRAs). As a result, ERISA’s prudent man rule does not govern the conduct of advisers when providing investment advice to individual IRAs.

However, when the Best Interest Contract Exemption (BICE) applies to “conflicted” advice on April 10, 2017, those advisers will need to, among other things, satisfy the Best Interest standard of care (which is, in its essence, a combination of ERISA’s prudent man rule and duty of loyalty). In effect, conflicted advisers will be bootstrapped into a prudent process requirement. (As background, a “conflicted” fiduciary adviser … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #14

Posted on August 2, 2016, by Fred Reish in DOL Activity, fiduciary, prudent. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #14

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

When the new fiduciary regulation applies on April 10, 2017, anyone who makes investment recommendations or investment “suggestions” to retirement plans will be a fiduciary adviser. As a result, the adviser must engage in a prudent process for developing those recommendations. However, that is not a dramatic change for many advisers, since they already serve as fiduciaries and use prudent process.

But, the same rules will apply to many advisers to IRAs. (In my next blog I will explain why I say “many” rather than “all.”) As a result, advisers to IRAs will also need to use prudent processes to develop their investment recommendations.

What does that process look like? The DOL explains:

“Thus the prudence standard, as incorporated in the Best Interest standard, is an … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #9

Posted on June 14, 2016, by Fred Reish in DOL Activity, fiduciary, prudent. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #9

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

As I explained in an earlier post, there are three parts to the best interest standard . . .

Prudence: “. . . the fiduciary acts with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, . . .”
Individualization: “. . . based on the investment objectives, risk tolerance, financial circumstances, and needs of the retirement investor, . . .”
Loyalty: “. . . without regard to the financial or other interests of the Adviser, Financial Institution or any Affiliate, Related Entity, or other party.”

The question for this “angles” article is, what is the difference … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #7

Posted on June 2, 2016, by Fred Reish in DOL Activity, fiduciary, prudent. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #7

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

There are three parts to the best interest standard . . .

The prudent person rule.
Individualization to the retirement investor’s circumstances.
The duty of loyalty.

See the three parts below. Interestingly, none of the parts uses the word “best.” In other words, “best interest” is just a label; the real requirements are prudence and loyalty.

Prudence: “. . . the fiduciary acts with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, . . .”
Individualization: “. . . based on the investment objectives, risk tolerance, financial circumstances, and needs of the retirement investor, . . .”
Loyalty: “. … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #6

Posted on May 24, 2016, by Fred Reish in DOL Activity, fiduciary, prohibited transaction, prudent, Uncategorized. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #6

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

In some cases, the concerns about the scope of the fiduciary rule are overblown. For example, there have been some statements that advice about minimum required distributions for IRAs would be fiduciary advice. That is not the case.

In the preamble to the fiduciary regulation, the DOL explained:

“With respect to the tax code provisions regarding required minimum distributions, the Department agrees with commenters that merely advising a participant or IRA owner that certain distributions are required by tax law would not constitute investment advice. Whether such “tax” advice is accompanied by a recommendation that constitutes “investment advice” would depend on the particular facts and circumstances involved.”

So, basic advice about tax requirements and consequences is not fiduciary advice. However, if the adviser recommends which … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #4

Posted on May 11, 2016, by Fred Reish in DOL Activity, fiduciary, prudent. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #4

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

During a recent webinar for TD Ameritrade, one of the attendees asked if Jim Cramer’s TV stock tips would be considered fiduciary advice. I said that they would not be, since they were not directed to a specific investor.

In hindsight, I wish that I had told him that the preamble to the fiduciary regulation specifically addressed that issue . . . more specifically than you might think. Here’s what the DOL said:

“Many commenters, as the Department noted above, expressed concern about the phrase ‘‘specifically directed’’ in the proposal under paragraph (a)(2)(ii) and asked that the Department clarify the application of the final rule to certain communications including casual conversations with clients about an investment, distribution, or rollovers; responding to participant … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #2

Posted on April 26, 2016, by Fred Reish in BICE, DOL Activity, prudent. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #2

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

The recommendation of investments and insurance products to plans, participants, and IRAs will be subject to the best interest standard of care. (The best interest standard is a combination of ERISA’s prudent man rule and duty of loyalty.)

The legal requirement that advisers make prudent recommendations and act with a duty of loyalty is well understood in the retirement plan world, but is new to IRAs.

Also, it’s commonly conceded that the prudent man rule is more demanding than the suitability standard. But that begs the question, what is required of the adviser?

The DOL answered that question in the context of fixed indexed annuities, and the answer may be surprising. (For other insurance products and investments, the DOL would likely say that a … Read More »




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