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Wednesday, December 14, 2016

RIAs have been slow to prepare for the DOL fiduciary rule

What must investment advisors watch out for in preparation for the implementation of the DOL fiduciary rule?

Retirement savings laws have been in effect and largely unchanged for about four decades, despite significant shifts in how our society manages its’ retirement investments. During that time, far too many Americans have been harmed by unscrupulous investment advisors putting their bottom line before the best interests of the investor.  

In response to the changing retirement landscape, the Department of Labor has enacted a new rule expanding the definition of investment advice and the fiduciary standard that will go into effect on April 10, 2017. Investment News reports that registered investment advisors (RIA’s) have been slow to prepare for the rule either because they believe the rule does not apply to them, or perhaps they hope that president-elect Trump will make good on his promise to repeal the rule.

A thorough reading of the rule reveals that it is applicable to anyone who:

  • provides “investment advice” for a fee or other compensation pursuant to a written or verbal agreement, or a general understanding that the advice is based on the particular investment needs of the individual, and
  • represents that they are acting as a fiduciary within the meaning of ERISA or the Internal Revenue Code of 1986, or
  • provides recommendations directed to a particular person or set of people regarding the advisability of a specific investment or management decision

The rule is, without a doubt, applicable to RIA’s and broker-dealers.

What can RIA’s do to prepare for a rule that is much more stringent than the fiduciary standard of the 1940 SEC Act or the ERISA Act of 1974?

First and foremost, you need to ensure that your revenue is conflict-free. This has not historically been an issue for RIA’s, but now if you advise a client to move from a brokerage account to a fee account or encourage a client to roll money over from a 401(k) into an IRA, these fees may be higher, which could pose a conflict.

Charging a level fee can allow you to use BICE (best interest of the client exemption) or BICE-light exemptions. BICE requires you to provide a written acknowledgment to your client that you are a fiduciary and provide written documentation as to why the advice is in the clients’ best interests, including real-world, tangible benefits.

Regardless of the financial arrangements that you are advising on, being well prepared to defend your fees is essential.

RIA’s also need to be aware that receiving gifts or payments related to their investment products will jeopardize their level-fee status. Now is the time for proactive policy-making.

Confused About the DOL Fiduciary Rule?

Lehman & Eilen provides broker-dealers with comprehensive legal representation on
regulatory and compliance matters and can walk you through the new fiduciary rule so that you can make the necessary changes before the April 2017 deadline.  If you are in need of regulatory counsel, contact the attorneys at Lehman & Eilen for a consultation or call (516) 222-0888.






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