Fiduciary Rule - Phasing in Compliance Steps

By Cory Roberson, Principal at RIA Review and RIA Consults

Q.  Quick Reference Guide

DOL Enforcement Date:  July 1, 2019

SEC Enforcement Date: Unknown

Who Must Comply: 

·        Retirement Plan Fiduciaries:

·        Employee Benefit plans: 401(k), pensions, etc.

·        Individual Retirement plans: IRA, Self-Directed IRAs, etc.

Who is a Fiduciary?

An advisor or advisor representative is deemed a fiduciary if they:  render advice (written or verbal agreements, arrangements or memorandums of understanding) that is based on the plan participant’s investment needs  directly advise or make recommendations to a plan recipient (participant) regarding investment or management decisions for securities or other investment property in the plan or IRA.

Examples include:

FINRA registered brokerage and financial services reps who provide advice or sell commission-based products to plan participants (ex. annuities, 12b-1 fees, loaded mutual funds)

Consultants to pension plan providers

Other ERISA retirement advisors who may split commissions or have a fee sharing arrangement for selling products (ex. self-directed IRA advisors/agents).

Service Providers – those who provide general advice, consulting or general recommendations may also fall into the role.

What are examples of prohibited transactions for fiduciaries

Fiduciaries must not engage in:

Self-Dealing/Principal Interest – Making recommendations in plan assets that are intermingled with a fiduciary’s own interest ore accounts (ex. receiving compensation from plan assets that are also invested in the principal other business, fund, or private fund).

Kick-Backs – Giving recommendations to plan members that are part of a transaction from a third party that are not in the best interest of plan members (ex. selling unsuitable products from brokerage affiliates).

Moving Assets – Providing recommendations that generate commissions from asset transfers from one product type to another (ex. switching clients from commission to flat fee structure, rollovers, or strategies toward loaded funds).

The previous transactions should:

Have an exemption applied with documentation that justifies the activity or,

Be avoided altogether

Applying Exemptions

Potential conflicts of interest

Moving Assets that prompt fees

 Self-Dealing

Kick Backs

Exemptions

Best Interest Contract Exemption (BICE)

When to apply: Commissioned based products or other products that generate certain fees.

Compliance Procedures

Website disclosures of Fiduciary Rule process

Adhere to Fiduciary Standards

 Disclosures of material conflicts related to third-party fees or other recommendations if applicable

Disclosures of related transactions.

Disclosures of pricing structure(s).

Obtain the consent of the Plan or IRA client (see “for contracts”)*.

Adopt certain policies and procedures to ensure standards are met.

Retain documentation to justify activities.

Restrictions:  Other Fees acceptable with exemption procedures in place.

For Contracts:  Yes, new contract or disclose on old contract

For Clients: Yes, communications/marketing/documentation sent to clients (ex. goals/risk tolerance, compensation arrangements, designation of fiduciary status)    

Best Interest Contract Exemption: (BICE LITE)

When to apply: Level Fee firm charging only a flat fee – no commission products

Compliance Procedure

A statement of fiduciary status from the advisor or institution

Adherence to fiduciary status in policies and procedure

Restrictions: No other fees/compensation if using this exemption

For Contracts: No

For Clients: No

Principal Transaction Exemption (“Principal”)

When to apply: Principal transactions from Commission=based products or products that generate certain fees.

Compliance Procedure

Website disclosures of Fiduciary Rule process

 Adhere to Fiduciary standards

 Disclosures of material

Conflicts of interest related to principal transactions and riskless principal transactions

 Obtain the consent of the Plan or IRA Client (see ‘for contracts’)*

 Adopt certain policies and procedures to ensure standards are met

 Retain documentation to justify activities

Restrictions: 

Has or exercises any discretionary authority or discretionary regarding management of plan or,

Advisor is employer to employee of plan

For Contracts: Yes, new contract or disclose on old contract

For Clients:  Yes, communications/marketing/documentation sent to clients (ex. goals/risk tolerance, compensation arrangements, designation of fiduciary status).

  

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Compliance and Business Management

FIN Compliance (FINCompliance.io) is a consortium of compliance services including: RIA Consults-Roberson Consults Group, a compliance consulting firm, RIA Review, a compliance-management software tool (SaaS), B-D Review, a RIA/Broker-Dealer compliance management software tool, and FINLancer is a business management portal featuring:  E-signature tools; Invoicing integration, Vendor Directory, continuity directory*, business client document portal, and more (available by Q3 2019).  Access all services on one site: FINCompliance.io.

Impact

FIN Missions (FINmissions.com) provides business support group sessions for other entrepreneurs.  In addition, Cory has volunteered for more than fifteen youth programs in locations such as like S. Korea, China, S. Africa, Thailand, and India.