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Fiduciary Advisers

What is a 408(g) fiduciary adviser?

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans.  We bring Case of the Week to you to highlight the most relevant topics affecting your business. A recent call with an advisor in Washington is representative of a common inquiry involving investment advice fiduciaries.

Highlights of discussion

  • “Fiduciary Advisers” may provide investment advice to qualified plan participants through an “eligible investment advice arrangement” that is based on a level-fee arrangement for the fiduciary adviser, a certified computer model or both [ERISA §408(g)].
  • A fiduciary adviser may also work with IRA owners as well.
  • Plan sponsors who engage a fiduciary adviser for their participants will not be responsible for the specific investment advice given, provided the adopting plan sponsors follow certain monitoring and disclosure rules. Plan sponsors are still responsible for the prudent selection and monitoring of the available investments under the plan and the fiduciary adviser.
  • The fiduciary adviser role is part of a statutory prohibited transaction exemption for the provision of investment advice that has been around since 2007, having been created by the Pension Protection Act of 2006 (PPA-06).  It has received very little attention over the years until now given the new emphasis on defining investment advice fiduciaries.
  • A fiduciary adviser could be a registered investment adviser, a broker-dealer, a trust department of a bank, or an insurance company.
  • To satisfy the exemption, a fiduciary adviser must provide written notification to plan fiduciaries that he/she intends to use an eligible investment advice arrangement that will be audited by an independent auditor on an annual basis. The fiduciary adviser must also give detailed written notices to plan participants regarding the advice arrangement before any advice is given.
  • Every year the eligible investment advice arrangement must be audited by a qualified independent auditor to verify that it meets the requirements. The auditor is required to issue a written report to the plan fiduciary that authorized the arrangement. If the report reveals noncompliance with the regulations, the fiduciary adviser must send a copy of the report to the Department of Labor (DOL). In both cases the report must identify the 1) fiduciary adviser, 2) type of arrangement, 3) eligible investment advice expert and date of the computer model certification (if applicable), and 4) findings of the auditor.

Conclusion

Under PPA-06, plan sponsors can authorize fiduciary advisers to offer investment advice to their plan participants and beneficiaries as part of an eligible investment advice arrangement.  Plan sponsors will not be held liable for the advice given by fiduciary advisers, provided all the requirements of the prohibited transaction exemption are met.

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Fiduciary Rule Transition

What New Disclosure is Required during the Fiduciary Rule Transition Period?

“Our firm will be following the Best Interest Contract Exemption (BICE) under the new investment advice fiduciary rules.  Our compliance department has provided a written notice of fiduciary status for us to use with our clients during the transition period that runs through December 31, 2017. Is this notice required?  

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

Highlights of Discussion

  • No, the written statement of fiduciary status is no longer required during the transition period. This is a recent change that was included in the regulation that delayed the applicability date of the new fiduciary rules to June 9, 2017 (DOL Reg. 2510.3-21).
  • The DOL changed the BICE and Principal Transaction Exemption transition period requirements, making adherence to the Impartial Conduct Standards1 during the transition period (June 9, 2017 through December 31, 2017) the only condition of compliance (removing the need to provide a written statement of fiduciary status as well as other requirements).
  • However, service providers to qualified plans may still be required to provide an updated service and fee disclosure under ERISA §408(b)(2) to reflect a change in fiduciary status as of June 9, 2017.
  • Pursuant to DOL Reg. § 2550.408b-2(c)(1)(iv), covered service providers to qualified retirement plans (e.g., 401(k) plans) who expect to receive at least $1,000 in direct or indirect compensation must provide plan fiduciaries with service and fee disclosures.  As part of the “408b-2” disclosure, service providers must include a statement of fiduciary status, if applicable [DOL Reg. § 2550.408b-2(c)(1)(iv)(B)].
  • Therefore, if a financial advisor’s status as a fiduciary to the plan changes as of the applicability date (June 9, 2017) of the investment advice fiduciary regulations, then he or she is required to provide an updated disclosure to the plan fiduciary reflecting the change in his or her fiduciary status.
  • The updated 408b-2 disclosure must be provided “as soon as practicable, but not later than 60 days from the date on which the covered service provider is informed of such change”  [DOL Reg. § 2550.408b-2(c)(1)(v)(B)]. Consequently, financial advisors should provide the notice by June 9, 2017 and no later than August 8, 2017.

 

Conclusion

Financial advisors should be aware that they may need to issue updated 408b-2 disclosures during the BICE and Principal Transaction Exemption transition period.

 

 

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© Copyright 2017 Retirement Learning Center, all rights reserved
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Possible Delay for Investment Advice Fiduciary Regulations

Will the DOL Investment Advice Fiduciary Rules Face a Regulatory Freeze?

“I heard there was memorandum issued from the White House that will freeze the DOL’s new investment advice fiduciary rules.  Is that true?”

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

Highlights of Discussion

  • It is true that the Assistant to the President and Chief of Staff, Reince Priebus, issued a memorandum on January 20, 2017, regarding managing the Federal regulatory process at the outset of the new Administration, including the possibility of temporary postponements for new and pending regulations.  What is unclear, however, is whether the directive will affect the yet-to-apply fiduciary rules.
  • The memorandum is specific to regulations that have not yet been published in the Federal Register, or have been published, but have not yet gone into effect. Neither condition applies in this case. The investment advice fiduciary rules were published in the Federal Register on April 8, 2016, took effect June 7, 2016, and will become applicable on June 9, 2017. Therefore, a purely technical reading of the memorandum would lead one to conclude that the fiduciary rules would not be subject to a postponement—at least under this guidance.
  • However, it is possible other guidance from the Administration and/or the DOL may be forthcoming that could delay the applicability of the fiduciary regulations.  For example, the DOL could follow the established rulemaking process (A Guide to the Rulemaking Process) and issue a notice of interim final rule to delay the applicability date.  The interim final rule would take effect immediately upon publication, but would be subject to possible changes after a public comment period of 30-60 days.
  • Much more to come.

Conclusion

Time is running short before the DOL’s new investment advice fiduciary regulations become applicable (June 9, 2017). Any directives to effect a further delay would have to be issued in the very near future.

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