On Tuesday, July 12 the topic of the FSP Milwaukee Chapter membership meeting was on the new DOL Fiduciary Rule. The meeting was sponsored by Husch Blackwell (formerly Whyte Hirschboeck Dudek S.C.) and presented by Attorneys David Eckhardt and Myriem Bennani. Below is a summary of the event by FSP Milwaukee Chapter President-Elect Kelly Dancy, Esq. – Walny Legal Group LLC.
The new fiduciary rule introduced by the Department of Labor (DOL) seeks to make changes when it comes to giving out retirement investment advice. One of these changes seeks to create a broader definition of the term “fiduciary” by not only eliminating the old 5-part test, but also revising the nature of what constitutes investment advice. No longer does the advice have to be on a regular basis, nor does there need to be a mutual understanding between the parties. Also under the new rule, investment advice no longer needs to be individualized based on the particular needs of the client, nor serve as the primary basis for investment decisions. The DOL also seeks to add to a fiduciary’s core duties, outlined by the Employee Retirement Income Security Act (ERISA), by including that the plan participant pays only reasonable plan expenses, and requiring advisors to address any conflicts of interest. By broadening the definition of a fiduciary, those who were previously exempt, such as, brokers, registered investment advisors, and insurance agents, may now have to acknowledge themselves as fiduciaries, thus forcing them to adopt the fiduciary standard of putting the client’s best interests first, as well as, possibly having to restructure any fees they may charge the participant.
If an advisor is a fiduciary, it is important to understand the roles and responsibilities that follow that designation and as well as what steps to take to comply with the new rules. A fiduciary advisor should identify all products and services sold to plans and IRAs, confirm that his or her firm has sufficient governing processes in place, identify all instances of variable compensation, develop compliance strategies, and provide training on the new fiduciary standard. It will also become necessary to document the process of selecting investments as well as monitoring those investments. Advisors should hold regular meetings with clients, so as to keep them informed and allow the client to make informed decisions when it comes to his or her investments. Advisors should also review their fee structure and determine whether or not the fees they charge are reasonable. If prior to being classified as a fiduciary, the advisor was receiving commissions, the advisor would need to qualify under an exemption to receive compensation. For most advisors, the Best Interest Contract Exemption (BICE) will be the appropriate exemption, thereby allowing certain advisors to receive such compensation.
Adherence to the DOL rules is not required until April 10, 2017. The Department has determined that, in light of the importance of the final rule’s consumer protections and the significance of the continuing monetary harm to retirement investors without the rule’s changes, an applicability date of one year after publication of the final rule in the Federal Register is appropriate and provides adequate time for plans and their affected financial services and other service providers to adjust to the change from non-fiduciary to fiduciary status. However, advisors should begin preparing now for the changes that are forthcoming.