This issue of Perspectives focuses on two recently issued U.S. Department of Labor final rules bearing on the activities that can confer ERISA fiduciary status on investment advisors and on the new “Best Interest Contract Exemption” setting forth the conditions for such advisors to receive compensation. Many more categories of communication with investors will now be considered fiduciary in nature, and many more investment professionals will find themselves labeled as fiduciaries.
In April 2017, the “Fiduciary” rule will expand the definition of “investment advice” under ERISA, superseding a more than 40-year-old standard for determining under what circumstances a person or entity is treated as providing fiduciary investment advice to an ERISA-covered benefit plan.
Plan sponsors, IRA owners, and those who currently provide fiduciary or non-fiduciary investment-related advice to retirement plans and IRAs (including in the context of a potential rollover transaction) should review and obtain advice on the Final Rule to determine its application to current investment-related activities regarding the applicable plan or IRA.
Also taking effect in April 2017 will be the DOL’s concurrently published final “best interest contract” exemption (“Final BICE”), which will allow persons who are deemed to be “investment advice fiduciaries” to receive compensation for investment advice if certain conditions are met. The Rule will require more disclosure and acknowledgements of fiduciary status by advisors.
These requirements are numerous and specific and will impose additional burdens on investment advice fiduciaries who wish to rely on the exemption. The cost of complying with these requirements may lead to increases in investment advisory fees if ultimately passed along by investment advice fiduciaries to retirement investors.
We look forward to hearing your comments.
Leader, Executive Compensation & Benefits Practice