Category: RIA


The Presidential Election: Now What?

Posted on November 29, 2016, by Fred Reish in BICE, Broker-Dealers, DOL Activity, fiduciary, Registered Investment Advisers, RIA. Comments Off on The Presidential Election: Now What?

One of the consequences of the presidential election is that the future of the fiduciary rule (and the exemptions) is uncertain. What does that mean to advisers . . . regardless of whether they are representatives of RIAs or broker-dealers, or for that matter, if they are independent insurance agents?

The answer is that nobody knows. However, this article outlines the most likely alternatives. Those are:

The rule will be killed by regulation or legislation.
The rule will be implemented “as is.”
The rule and the exemptions will be modified.

Only the second alternative (the “as is” option) could realistically be implemented by the current deadline of April 10. But, that’s the alternative that is, in my opinion, the least likely to happen. While it is low probability, it is high risk in the sense that broker-dealers and RIAs must be in compliance by April … Read More »


Interesting Angles on the DOL’s Fiduciary Rule #27

Posted on November 8, 2016, by Fred Reish in 408(b)(2), BICE, DOL Activity, Registered Investment Advisers, RIA. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #27

The Definition of Compensation

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

As the readers of these articles know, one impact of the new fiduciary rule is that compensation paid to Financial Institutions and advisers must be reasonable. Reasonable, in turn, is a function of a transparent and competitive marketplace. However, where the competitive market does not work (for example, where compensation is not transparent), customary compensation may not be reasonable.

But, this article is not about reasonable compensation. Instead, the question is, what is “compensation?”

The Department of Labor partially answered that question in the fiduciary regulation:

“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 or compensation received … 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 #1

Posted on April 19, 2016, by Fred Reish in Broker-Dealers, DOL Activity, fiduciary, prudent, Registered Investment Advisers, RIA. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #1

While you have probably read articles that summarize the DOL’s final fiduciary rule and exemptions—and perhaps even articles that discuss specific aspects of the rules, there are a number of interesting observations “hidden” in the preambles to the regulation and exemptions.

In many cases, those comments are so focused on limited issues or complex that they are beyond the scope of the initial articles, speeches and webcasts. As a result, I will be writing several articles about those “nuggets.” This is the first of those articles.

In the preamble to the Best Interest Contract Exemption (BICE), the DOL noted that a fiduciary adviser and his or her financial institution (e.g., RIA firm or broker-dealer) could contractually limit the duty to monitor. But then the DOL went on to say:

“Further, when determining the extent of the monitoring to be provided, as disclosed in … Read More »


The Year of the Fiduciary Rule

Posted on January 7, 2016, by Fred Reish in Broker-Dealers, DOL Activity, fiduciary, Registered Investment Advisers, RIA. Comments Off on The Year of the Fiduciary Rule

2016 promises to be the year of the fiduciary . . . the fiduciary rule, that is.

It now seems certain that we will have a final fiduciary rule in effect by the end of 2016.

What will that mean? It will re-write the rules for investment advice and sales to retirement plans and IRAs. The impact will vary, depending upon whether the person making the recommendation is an RIA, a broker-dealer, or an insurance agent or broker.

For example, for RIAs, the greatest impact will be on investment advisers who recommend retirement plan distributions and rollovers and those who receive additional fees (for example, 12b-1 fees) from their IRA investors. On the other hand, advisers of broker-dealers will need to make significant changes in disclosures and compensation practices across the board (that is, for recommendations to plans and IRAs, and recommendations about … Read More »


Providing Compliant Services

Posted on August 19, 2014, by Fred Reish in Broker-Dealers, DOL Activity, Registered Investment Advisers, RIA. Comments Off on Providing Compliant Services

The increasing regulation of 401(k) distributions and rollovers to IRAs continues to be a subject of great interest to my clients . . . and a considerable amount of work for me. One of the benefits of concentrated work in that area has been an enhanced appreciation of the difficulty of broker-dealers, provider call centers, and RIAs in providing compliant services . . . from a practical perspective.

For example, viewed academically, it is possible to put together a compliant rollover program under FINRA’s guidance in Regulatory Notice 13-45. At the least, that would involve written materials and discussions about the seven factors listed in the guidance. The written materials would be provided to participants to both educate them and to support compliance and supervision. The conversations would be structured to provide a reasonable basis for developing a suitable recommendation, based … Read More »


Advisory Opinion 2013-03A

Posted on May 28, 2014, by Fred Reish in 408(b)(2), DOL Activity, fiduciary, prudent, Recordkeeper, Registered Investment Advisers, RIA. Comments Off on Advisory Opinion 2013-03A

In Advisory Opinion 2013-03A, the Department of Labor said: “This letter also does not address any fiduciary issues that may arise from the allocation of revenue sharing among plan expenses or individual participant accounts . . .”

In effect, the DOL was saying that it has not issued any guidance—and is not prepared to issue guidance—concerning the allocation of revenue sharing. That is a reminder that there isn’t any explicit guidance on how to allocate revenue sharing. As a result, fiduciaries need to engage in a prudent process to make that decision.

In most cases, revenue sharing is used to pay the cost of recordkeeping. In effect, it is arguable that, when the recordkeeper keeps the money, it is a pro rata allocation among the participants’ accounts. That is because the most common way of allocating expenses (for example, recordkeeping or RIA … Read More »


Capturing Rollovers: A Changing Environment

Posted on March 5, 2014, by Fred Reish in DOL Activity, fiduciary, prohibited transaction, Registered Investment Advisers, RIA. Comments Off on Capturing Rollovers: A Changing Environment

Recent developments suggest that FINRA, the SEC and the DOL are working together…or, perhaps, have independently reached the same conclusions.

In the past few months, FINRA has discussed rollover IRAs in five publications. The most important of those being Regulatory Notice 13-45, which creates a fiduciary-like process for recommendations about distributions and IRA rollovers. (By the way, I believe FINRA’s Investor Alert on rollovers is helpful and should be given to prospective rollover customers.) Then, to put an exclamation point on that guidance, both FINRA and the SEC listed rollovers to IRAs as one of its 2014 Examination Priorities for broker-dealers.

Finally, it is commonly expected that the DOL will issue its proposed regulation on the definition later this year…and that the proposal will expand its prior guidance on “capturing” rollovers. Fiduciary status alone increases the scope of the DOL’s jurisdiction and … Read More »


Responsible Plan Fiduciaries and Disclosure Issues

Posted on September 4, 2013, by Fred Reish in 408(b)(2), Broker-Dealers, fiduciary, Plan Sponsors, Recordkeeper, Registered Investment Advisers, RIA, Service Providers. Comments Off on Responsible Plan Fiduciaries and Disclosure Issues

The 408(b)(2) regulation requires that its service, status and compensation disclosures be made to “responsible plan fiduciaries” or “RPFs.” In the rush to make the 408(b)(2) disclosures, most recordkeepers, broker-dealers and RIAs sent their disclosure documents to their primary contact at the plan sponsor. In at least some of those cases, the primary contact was not the RPF. As a result, we added language to our clients’ disclosures to the effect that, if the recipient was not the RPF, the written disclosure should immediately be forwarded to the RPF.

The regulation defines RPF as “a fiduciary with authority to cause the covered plan to enter into, or extend or renew, the contract or arrangement.” In other words, it is the person or committee who has the power to hire and fire the particular service provider, e.g., the broker-dealer, recordkeeper or RIA.

Because … Read More »




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