Compliance September 15, 2016

PANC 2016: Fiduciary Rule Aftermath for RIAs

Even registered investment advisers, who have been acting as fiduciaries, will be impacted by the new rule.
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The Department of Labor’s (DOL’s) new fiduciary rule will impact registered investment advisers (RIAs), even though they already have been acting as fiduciaries, speakers at the 2016 PLANADVISER National Conference said.

“You will need to spend time with lawyers to figure out what you can and cannot say, mutual funds will develop new share classes, you will need to conduct more due diligence on [the] options [you present to clients] and [it will be critical to] document processes,” said Gerald Lins, general counsel with Voya Investment Management.

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RIAs who recommend rollovers into individual retirement accounts (IRAs) where their fees remain the same will need to present investors with a best interest contract (BIC)-“light” exemption, Lins added. However, if their fee is commission-based, they will need to equip the investor with a “full-fledged BIC exemption,” he said.

As a result of the rule, Lins expects advisers who only occasionally recommend IRA rollovers to stop making these recommendations. In addition, if an adviser recommends a particular investment, they must name all of the alternatives available, Lins said.

The rule will also reign in RIAs’ pitches to new business, said Leah Singleton, counsel with the employee benefits and executive compensation group at Alston & Bird LLP. “Be mindful of education, recommendations and pitches,” she said. “The rule is not rules-based but principles-based, so there is no formula in a vacuum to follow. You must look at the context, content and presentation. The rule is broadly sweeping and frustrating. Any pitch to new business must not include specific investment recommendations. If you recommend a particular fund, you cross the line. So, be sure to look at your marketing materials and make sure they do not include any specific advice or recommendations.”

If another party links to an RIA’s website, that could be perceived as a recommendation, and the DOL says you cannot use disclaimers from being a fiduciary, Singleton said. “We are advising clients to stay away from disclaimers,” she said.

However, Michael Vincent, director of sales operations at Financial Engines, said he expects plan sponsors will reach out to RIAs for help complying with the new rule, and this could deepen advisers’ client relations. 

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