The Department of Labor’s Proposed Fiduciary Rule: What Investment Advisors Should Be Doing Now

The new Department of Labor (“DOL”) Rule changes the definition of “fiduciary” under the Employee Retirement Income Security Act (“ERISA”), expanding the universe of financial professionals who would be deemed to be fiduciaries.

Most of the Rule’s requirements become effective April 10, 2017.  The full disclosure provisions, the policies and procedures requirements, and the contract requirement do not go into full effect until January 1, 2018.

While RIAs who do significant business in the 401(k) market have experience in complying with ERISA and DOL requirements, the vast majority of RIAs – who may advise only on IRAs for individuals – could find themselves scrambling to comply with new reporting and regulatory requirements.

WHAT YOU CAN DO NOW

Know and quantify your existing retirement business.

• Understand the full scope of your firm’s retirement business. Identify all your pension, 401(K), and IRA accounts.  Review their holdings and determine if you receive any compensation from any source other than the client – that compensation might need to be subject to a Best Interests Contract Exemption (BICE) contract.
• Determine which of your accounts have commissionable products. If you are a Registered Representative of a broker-dealer, you must determine if it is in your client’s best interest to move his or her account to an RIA, fee-based account. Decide what that conversion will look like. You will need to document and retain your analyses.  Remember, your analyses must show that your conversion (or staying put) is in the client’s best interest, not yours.
• Your analysis might be guided by your client’s holdings. For example, you might have clients in a variable annuity with surrender charges that you don’t want to move. As with rollovers, you must consider the cost of the old product and the cost of the new product or program.

Review business practices and procedures.

Carefully review business practices and procedures in key areas such as education, rollovers, and referrals.  If you provide educational retirement classes, lunches, or seminars, review your materials to ensure they fall within the education exemption. Your materials should consist of general information about the mix of assets an investor should have based on age, income, and other circumstances.  Your materials should avoid suggesting specific stocks, bonds, or funds – otherwise this could constitute advice subject to a fiduciary duty.

Consult with internal and external experts as you develop your plans.

Given the anticipated complexity of the rule, firms should engage legal, tax, and compliance experts to help them fully understand its implications and ensure their plans comply with the new regulations.

Start the conversation with clients now.

Your clients may have no idea that this is coming or what it means. They should hear about it from you. You should be talking to clients now about the DOL fiduciary rule.

Oyster Consulting understands that every firm is unique. Our experts have years of industry experience, and can quickly assess through thoughtful and skillful questions what areas of your firm are ready to comply with the new regulations, and those that may need improvement. Oyster will not only provide you firm with a written report of problem areas, but will also identify best practices.