Insights from the experts in investment fiduciary responsibility.

Q&A on the DOL's Fiduciary Rule: Is this covered?

Posted by Duane Thompson on May 18, 2016

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A few weeks ago, we presented webinars covering the DOL’s recently released fiduciary rule. A recording of that webinar is now available. During that webinar we received over 80 questions. We were not able to answer all of those during the one hour session, but we have compiled and answered them here. The questions are categorized, and we will do separate blog posts to address all of the questions within a given category. These questions are not comprehensive of the rule, they only address the questions that were submitted. Think of them as an addendum to the webinar. For a more comprehensive view of the rule, we recommend you view the recording, as well as download our Executive Summary and Client Memo documents.

In our seventh Q&A blog post from the webinar, we are answering questions around certain activities and if/how they are considered fiduciary under the rule. Please note: the views expressed herein are strictly informational, do not represent an official position of fi360 on regulatory or legislative matters, and should not be relied upon as legal, compliance or investment advice.              

Q: As a fee-only advisor (AIF® Designee) who has been using index funds and acknowledges fiduciary status openly, is there any real impact to me? It doesn't seem there is, outside of extra documentation of recommendations.

A: Fee-only advisors may be subject to BICE, particularly in connection with rollover advice to prospective clients.  As such, they should carefully review how the Department of Labor (DOL) defines ‘level fees.’  If their compensation increases as the result of recommending a rollover, the DOL provides a streamlined ‘level fee’ exemption under BICE. In this context, the RIA has a conflict of interest that must be managed.  

Q: HSAs are covered under the new Rule.  Are Coverdell IRAs also covered?

A: Investment advice to Coverdells is also covered by the new Rule. BICE is available for both accounts if the fiduciary advisor wants to receive variable compensation.

Q: If the SEC comes out with a uniform fiduciary standard, will it trump the DOL ruling? What is the future for taxable accounts and fiduciary advice?

A: We can only speculate what will be in the SEC’s proposed rule, but it cannot ‘trump’ the DOL rule with regard to tax-favored accounts.  Yes, the SEC can set its own rules for both types of accounts, but a more lenient fiduciary standard will not lower the bar set by the DOL for ERISA and IRA advice.  From a practical standpoint, the argument for scale makes sense by applying the higher (DOL) standard to all accounts even if the SEC adopts a lower standard.  However, hold-outs for any kind of loophole reducing liability in taxable accounts are very likely to argue against harmonization of DOL and SEC rules.

Q: Will a bank teller’s referral of a client to an advisor, and receiving a bonus for doing so, be considered a fiduciary act?

A: The final Rule generally applies to investment advice to ERISA plans, participants, and IRAs, not general referrals for investment advice.  If the teller’s referral is provided in a retirement context, such as a referral to an in-house advisor to manage the banking customer’s retirement account, then the teller may very well meet the definition of a fiduciary. 

Q: Under the rule will all retirement investment advisors be ERISA 3(21) fiduciaries with some operating under the BIC exemption?

A: The new definition is very broad.  It will be difficult to avoid fiduciary status for most retirement advisors.  It is still unclear how many firms will use the BIC Exemption.  They are still analyzing the operational costs of the safe harbor.

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