Retirement Advice and the SEC
While the DOL’s fiduciary regulation and prohibited transaction exemptions have occupied everyone’s attention over the last year, other regulatory agencies have been focusing on retirement plan issues, as well.
For example, in its “Examination Priorities for 2017,” the SEC has indicated that it will focus on “Senior Investors and Retirement Investments.” Specifically, the SEC says:
As the U.S. population ages and investors become more dependent than ever on their own investments for retirement income, we are devoting increased attention to issues affecting senior investors and those investing for retirement.
ReTIRE. We will continue our multi-year ReTIRE initiative, focusing on investment advisers and broker-dealers along with the services they offer to investors with retirement accounts. This year, these examinations will likely focus on, among other things, registrants’ recommendations and sales of variable insurance products as well as the … Read More »
Presidential Memorandum on Fiduciary Rule
Last Friday, the White House directed a memorandum to the DOL to review the fiduciary regulation and the related exemptions (the “fiduciary rules”).
This article discusses what the memo did and did not do, and what the next steps are.
As a legal matter, the memo was more “show” than “go,” in the sense that it did not delay, withdraw or modify the fiduciary rules. Instead, it directed the DOL to evaluate the rules and to determine if they should become applicable, be modified or be withdrawn.
Shortly after the memo was signed, the Acting Secretary of Labor said that the Department would look into possible legal actions to delay the application of the rule. While that clearly indicates a desire to delay the applicability date beyond April 10th, it also suggests that the DOL has not decided if … Read More »
A Seminar Can Be a Fiduciary Act
This is my 34th 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.
Last week, the DOL issued its second set of FAQs on the fiduciary rule and conflict of interest exemptions. For the most part, the DOL’s answers were consistent with the industry’s understanding of the rules. However, a few were particularly interesting. For example, Question 17 asked:
Q17. Would a free dinner seminar offered by an investment adviser as a means of marketing services or investments to a group of retirees or individuals approaching retirement be a widely attended speech or conference within the meaning of the general communications provision of the Rule?
Before giving you the answer, let me explain the significance of the question. If … Read More »
Discretionary Management, Rollovers and BICE
This is my 33rd 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.
Most broker-dealers and RIA firms are familiar with the provisions of the Best Interest Contract Exemption (BICE) and with the fact that, as a general rule, BICE applies only to non-discretionary investment advice. But, that isn’t the end of the story. There are some situations in which discretionary management can be used for recommendations that are covered by BICE. For example, if a representative of a broker dealer or an RIA prudently recommends a distribution and IRA rollover (satisfying the Level Fee Fiduciary conditions), the IRA may be invested using discretionary investment manager. (Note, though, that the discretionary investment management must be provided by a “pure” Level Fee … Read More »
Please join us for the nineteenth Inside the Beltway presentation, scheduled for January 26, 2017. This is the next session in an ongoing series of free audiocasts presented by Fred Reish and Brad Campbell, of Drinker Biddle & Reath, discussing developments in Washington that directly impact our industry. The presentation is sponsored by Natixis. Click on the linked title, above, to register.
During this session of Beltway we will discuss:
Update on the fiduciary rule
Update on the special Financial Institution status for IMOs and the sale of fixed indexed annuities
Impact of the Congressional proposals for retirement plans
Impact on retirement plans of other priorities of the Trump Administration
The audiocast will be recorded and available to all registrants within a week of the presentation. An Outlook appointment request will be sent with registration confirmation.
Questions? Please contact email@example.com.
What “Level Fee Fiduciary” Means for Rollover Advice
This is my 32nd 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.
As explained in article #30 in the Angles series, in order to use the simplified, or BICE-lite, alternative for recommending that participants take distributions and roll over to IRAs with the adviser, the adviser must be a “Level Fee Fiduciary.” The Best Interest Contract Exemption (BICE) defines “Level Fee Fiduciary” as:
A Financial Institution and Adviser are ‘‘Level Fee Fiduciaries’’ if the only fee received by the Financial Institution, the Adviser and any Affiliate in connection with advisory or investment management services to the Plan or IRA assets is a Level Fee that is disclosed in advance to the Retirement Investor. A ‘‘Level … Read More »
“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 »
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 »
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 »
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 »