On April 16th, the Department of Labor provided the long awaited revision to the fiduciary definition in the Fiduciary Rule. The new rule has been debated for many months and clarifies what is considered fiduciary advice. Under ERISA, a fiduciary is defined as someone who exercises discretion as to the management of a plan, someone who exercises discretion as to the investment of plan assets and a person who provides investment advice for a fee or other compensation. This legislation refers to investment advice so those impacted most by the new regulation are your current investment advisors if they are not currently acting in a fiduciary capacity.
The Fiduciary Rule was designed to help prevent “conflicted advice” where an investment recommendation could affect the amount of compensation paid to an advisor. For example, certain types of mutual fund share classes found in retirement plans are commission based and pay varying degrees of compensation. Also, recommendations on rollovers from ERISA plans such as 401(k)’s and 403(b)’s to IRA’s will now be considered fiduciary advice as the DOL had concerns that these recommendations may be driven in part by the prospect of higher compensation.
As the new rule expands the definition of fiduciary advice, plan sponsors may see their current advisors amend their service agreements limiting the types of advice offered and disclaiming that they offer advice that falls within the updated statute. There are exemptions to the rule which would require an advisor to enter into a contract, known as a Best Interest Contract, accompanied by certain disclosures and acknowledgements.
Most of the new provisions will be effective April 10, 2017 with full implementation on January 1, 2018.
As the legislation evolves, there will be further updates and guidance from the regulatory agencies. At Innovative, we will keep you apprised of any new developments and will be providing educational meetings on what plan sponsors should be doing to prepare for the implementation of this new regulation. If you would like more information on how your plan may be impacted, please click here to complete our contact form and one of our consultants will follow up with you.
