fiduciary rule - isc annual compliance mtg

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THE NEW FIDUCIARY RULE

September 23, 2016

Robert D. Kowalewski, MBA, AIF, CRPS

More advisors are now seen as fiduciaries.

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AGENDA

THE IMPACT

THE DEFINITION

THE IMPLICATIONS

THE NEED FOR EXEMPTION

THE BEST INTEREST CONTRACT EXEMPTION

THE ROLLOUT

CONCLUSIONS

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OVERVIEWTHE IMPACT

• Protects investors

• Requires those providing investment advice to abide by a fiduciary standard – putting the client’s best interest before their own profits

• Fulfills the DOL’s mission to protect, educate, and empower investors as they make decisions leading to retirement readiness

• Impacts many advisors who will be deemed fiduciary advisors for the first time ever

The Department of Labor’s final fiduciary rule:

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THE DEFINITION (1 OF 2)FIDUCIARY STATUS OF ADVISOR UNDER THE NEW RULE

PROVIDE INVESTMENT ADVICE TO RETIREMENT CLIENTS FOR COMPENSATION

HANDLE PLANS AND EVEN IRAs

ERISA fiduciary status is triggered if advisors:

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THE DEFINITION (2 OF 2)FIDUCIARY STATUS OF ADVISOR UNDER THE NEW RULE

Investment advice definition broadly covers recommendations relating to:

INVESTMENTS (like securities, other property)

INVESTMENT MANAGEMENT (like recommending investment strategies, advisors)

ADVISORS ACKNOWLEDGING THEY ARE ACTING AS FIDUCIARIES

ROLLOVERS (from plans, from IRAs)

THE RETIREMENT CLIENT’S OWN NEEDS

PARTICULAR INVESTMENT DECISION DIRECTED TO A SPECIFIC CLIENT

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THE IMPLICATIONSFIDUCIARY STATUS IS EASILY TRIGGERED

The new fiduciary rule broadens the scope of fiduciary advice:

RETIREMENT CLIENT SIMPLY NEEDS TO RECEIVE ADVICE

INVESTMENT ADVICE CAN OCCUR JUST ONE TIME

BROKERS ARE NOT EXEMPT FROM BEING VIEWED AS FIDUCIARIES

ADVICE MAY ADDRESS A PARTICULAR INVESTMENT DECISION/NEED

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THE NEEDEXEMPTION FROM PROHIBITED TRANSACTION RULES

Prohibited transaction rules:

• Ban fiduciary advisors from earning variable compensation/commissions

• Flag advisors making recommendations and receiving commissions as fiduciaries

• Require exemption from prohibited transaction rules for brokers, including IRA advisors

• Posed a critical need for the DOL to release the Best Interest Contract (BIC) exemption

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BIC EXEMPTION (1 OF 5)BEST INTEREST CONTRACT (BIC) PROVIDES RELIEF

The purpose of the BIC exemption is to:

• Enable fiduciary advisors to earn variable compensation

• Provide ability for brokers serving as fiduciaries to have the ability to earn commissions

• Cover fiduciary advice provided to IRAs, as well as retail plans with less than $50 million in assets

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The Impartial Conduct Standards ensure that advisors:

• Give advice solely in the best interest of the retirement client

• Earn only reasonable compensation

• Provide no misleading statements to the client

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Different requirements apply for IRAs and sole proprietor plans:

• Written contracts must include fiduciary standards, as well as disclosures for compensation and conflicts

• Transaction disclosures must be provided for recommended investments that focus on fiduciary standards and advisor conflicts

• Web disclosures must be posted to a public website, focusing on the firm’s business models and conflicts

• Specific compensation figures related to any recommended investment must be provided upon client request

• Compliance policies must be adopted and address conflicts of interest

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For employer-sponsored plans:

• Written acknowledgements (not contracts) of fiduciary status must exist

• The other requirements that apply to IRAs and sole proprietor plans apply here, too

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When level-fee fiduciaries (i.e., RIAs) offer rollover advice, the BIC Exemption is critical.

• Conflict arises if the fiduciary advice triggers a rollover and additional compensation for the advisor

• BIC Exemption offers relief for these types of conflicts, but rollover advice must meet Impartial Conduct Standards

• Streamlined requirements include:

Providing written statement of your fiduciary status

Internally documenting your reasons why the rollover advice is in your client’s best interest

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THE ROLLOUTTHE HISTORY & EFFECTIVE DATE

PROPOSED THE FIDUCIARY RULE ON APRIL 20, 2015

ANNOUNCED THE FINAL RULE ON APRIL 6, 2016

WILL MAKE THE RULE EFFECTIVE ON APRIL 10, 2017

FORMALLY PUBLISHED THE RULE ON APRIL 8, 2016

The Department of Labor:

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CONCLUSIONSMOVING TO A UNIVERSAL STANDARD FOR FIDUCIARIES

FIDUCIARY STATUS IMPOSED ON ALL RETIREMENT ADVISOR TYPES

EARNING COMMISSIONS = HIGHER COMPLIANCE COSTS VIA BIC EXEMPTION

CLIENTS SHOULD ASK ADVISORS ABOUT IMPACT ON SERVICES & FEES

ADVISORS MAY NEED TO RE-EXAMINE THEIR CLIENT SERVICE MODELS

PLANNING AND EDUCATION CAN PREPARE ADVISORS FOR THESE CHANGES

PROFESSIONAL ERISA FIDUCIARIES CAN PROVIDE VALUABLE GUIDANCE

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fiduciary rule - isc annual compliance mtg

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