The DOL Fiduciary Rule: You're Prepared If You Have...

by: John Lohr

Summary

If you can answer "Yes" to everything that relates to your specific business -- advisor or broker -- you are ready to comply with the Rule when it is effective next year.

This is everything you need to get ready now. Retool or adjust -- it's not as complicated as firms are making it.

There's no reason for any ethical advisor or broker to even consider leaving the business. You're the ones we need most.

IF YOU HAVE:

Acknowledged that you have fiduciary responsibility for giving advice to retirement plans, including 401(k)s and also IRAs. Included advice-giving fiduciaries are advisors (RIAs and their IARs), brokers and insurance agents who receive compensation from retirement plans.

A practice of rendering advice to retirement plans, including 401(k)s and IRAs that can be justified as being "in the best interest of the Client."

A firm that bans financial incentives which could cause an advisor's advice to be not in the client's best interest.

A full disclosure of all fees, including fees on transactions, fees on holdings, fees paid to investment providers, and fees to the advisor posted on a website to which the client will be referred.

A client agreement that makes those disclosures.

Investment products like listed options, annuities, proprietary products, REITs to sell to clients, and they adhere to the Best Interest Contract Exemption (BICE). Which means:

-An agreement with the client that has a clause stating that any advice will be in the client's best interest, that only "reasonable" compensation to the advisor will be charged and has no misleading statements about fees and potential conflicts, among other provisions.

-401(k)s rolled into IRAs that you can prove are in the best interest of the client

-IRA and 401(k) fees that are comparable or have additional services the client gets for a reasonable cost.

-Product and ERISA training so that you are clear about making recommendations that are only in the best interest of the clients and that your fee structures are completely understood.

-High front-end loads in fixed and variable annuities that are justified as in the client's best interest, considering all factors including fees.

Leveled fees in your advice models, so as to eliminate any potential conflicts and adhere to the Best Interest of the Client provisions.

Documentation that rolling a 401(k) into an IRA advisory account is in the best interest of the client, i.e., if the total cost under the advice model is not more than under the plan, or the client will be getting additional planning or other services at a reasonable cost.

Compartmentalization of household fees so that management fees and expenses relating to the 401(k) or IRA accounts are disclosed separately from the non-DOL accounts.

A guideline range of consistent acceptable pricing for investment and planning services charged by advisors.

Disclosure of any and all potential (or actual) conflicts of interests.

Advisors that can provide a non-individualized platform of funds to plans which a plan can then select from if they state they are not providing individualized advice or acting as a fiduciary. However, it would not likely warrant an ongoing asset-based fee, if no advice is given.

A consulting business that only reports on fund investments (like Morningstar reports). You won't be a fiduciary for just that, but these reports are so widely available, there is little value to them, so it might not warrant any fee.

Investment education for participants. It also is not a fiduciary function by itself.

A non-individualized platform of funds to show to plans which the plan can then select from, as long as you state you are not providing individualized advice or acting as a fiduciary.

An account opening and ongoing planning and investment management process that includes a place to document your discussions with the client that supports regulatory compliance.

A website that meets additional fee disclosure requirements.

Ongoing client plan updates and account/household investing and rebalancing.

Educational resources available to make sure you and your advisors are adequately equipped to service their clients as fiduciaries.

Policies and procedures designed to ensure that you and your advisors provide best-interest-of-the-client advice, while prohibiting financial incentives for advisors to act contrary to the client's best interest.

An awareness of clients that may be impacted by the changes due to the inclusion of any IRA or 401(k) account in an advised plan where a fee is being charged; this does not include 401(k)s that are aggregated in a plan, with no charge.

Determined that accounts that can be moved to an advice model without disadvantaging the client, and have laid the groundwork to begin the transition.

Discovered clients that would be disadvantaged by an advice for fee model (like a surrender charge on an annuity, for example).

Knowledge of certain grandfathering rules for accounts already invested in certain products, and those that will be allowed to remain with the broker under their old model.

Author's note: The rules are really not complicated and if you want to know any specifics, or have a question, contact me via email at SA. We are in this business for business people. If you want our short Rule abstract, you can have it complimentary from our resource section at somebodyelsesmoney.com .

JL

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: We are in the business of assisting Advisory businesses in the ethical treatment of Somebody Else's Money according to SEC, DOL and FINRA rules.