The New Fiduciary Rule
The new fiduciary, or conflict-of-interest, rule from the
Department of Labor (DOL) expands the type of advisers deemed to be fiduciaries
to individual retirement accounts (IRAs) and retirement plans, according to Tom
Clark, of counsel with the Wagner Law Group.
He told attendees of the 2016 PLANADVISER National
Conference in Orlando that the new rule targets broker/dealers and registered
representatives. It impacts registered investment advisers (RIAs) who offer rollover
advice and managed account offerings.
With the new rule, the previous five-part test for
determining whether someone is offering fiduciary advice is gone. Now,
essentially, there is a two-part test, Clark said—whether someone makes a
“recommendation” and is paid a fee. He added that the rule defines a
“recommendation” as anything that can be reasonably viewed as a suggestion to
engage in a particular course of action.
There are still questions about whether some things are
considered “recommendations” under the new rule, and the DOL has promised some
soft guidance about this, according to Clark. “Now recommending a provider is
a fiduciary duty,” he said. “For example if an adviser does a [request for
proposals (RFP)] and makes any quantitative statements about the results, that
is a fiduciary act. If a wholesaler says, ‘I think you should use this
adviser,’ that can fall into the category of recommendation.”
As a result of the rule, some advisers are in the process of
selling their wealth management businesses, according to Clark. Others are
hiring certified financial planners and buying wealth management companies,
while some are partnering with third-party wealth management providers.
Advisers should identify all products and services offered
to retirement plans and individual retirement accounts (IRAs) and confirm they
have adequate supervisory control in place, according to Clark. They should
also identify all instances of variable compensation.
The first deadline for the new rule is April 10, 2017. “A
‘transition’ BIC requiring disclosure should be used, and a BIC exemption
officer should be designated,” Clark said.
As of January 1, 2018, advisers should use a full-blown BIC for IRA and
ERISA plan clients.