Dept. Of Labor Answers Questions About Fiduciary Rule

November 04, 2016

The Department of Labor has issued the first of what's expected to be a series of "Frequently Asked Questions" about the new fiduciary rule for retirement investment advice taking effect January 2018.

The first round includes 34 questions divided into 10 categories, in a document that runs 24 pages long in an attempt to provide advisors more clarity as to what a fiduciary standard will mean for their practices.

Below are the questions addressed in this FAQ:

Compliance Dates

Q1. When do firms and their advisers have to comply with the conditions of the new BIC Exemption and Principal Transactions Exemption?

Q2. When do firms and their advisers have to comply with the new conditions in preexisting exemptions that were amended in connection with the Rule?

Best Interest Contract Exemption – General Questions

Q3. Is the BIC Exemption broadly available for recommendations on all categories of assets in the retail advice market, as well as advice on rolling assets into an IRA or hiring an adviser?

Q4. Is compliance with the BIC Exemption required as a condition of executing a transaction, such as a rollover, at the direction of a client in the absence of an investment recommendation?

Q5. If an adviser and firm are compensated solely on the basis of a fixed percentage of assets under management, do they need to rely on an exemption, such as the BIC Exemption, to avoid committing a non-exempt prohibited transaction?

Q6. Is the BIC Exemption available for advisers who act as discretionary fiduciaries to retirement plans and then provide investment advice to a participant to roll over assets to an IRA for which the adviser will provide advice?

Q7. Is the BIC Exemption available for recommendations to roll over assets to an IRA to be managed on a going-forward basis by a discretionary investment manager?

Q8. Is the BIC Exemption available for prohibited conflicts of interest arising from the actions of a discretionary manager of assets held in a plan or IRA? What exemptions are available for these prohibited transactions?

Q9. The full BIC Exemption1 provides that financial institutions cannot "use or rely upon quotas, appraisals, performance or personnel actions, bonuses, contests, special awards, differential compensation or other actions or incentives that are intended or would reasonably be expected to cause Advisers to make recommendations that are not in the Best Interest of the Retirement Investor." Does this provision categorically preclude financial institutions from paying higher commission rates to advisers based on volume (e.g., by using an escalating grid under which the percentage commission paid to the adviser increases at certain thresholds).

Q10. Is "robo-advice" covered by the BIC Exemption or other exemption?

Q11. Does the full BIC Exemption prohibit a financial institution or adviser from discounting prices paid by customers for services?

Q12. Is the payment of recruitment bonuses or awards to an adviser by a financial institution permissible under the full BIC Exemption? Does it matter if the bonus or award is contingent on the achievement of one or more sales targets?


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