This is thirteenth article about interesting observations “hidden” in the fiduciary regulation and the exemptions.
It is not clear under current rules whether “suggesting” investment policies is a fiduciary act. In that vein, it’s also not clear if providing a sample investment policy statement (IPS) is a fiduciary act. However, that is about to change.
When the new fiduciary regulation applies—on April 10, 2017, the recommendation of investment policies, strategies or portfolio composition will be fiduciary activities. As the DOL says in the preamble to the fiduciary regulation:
Specifically, the final rule includes text that describes management of securities or other investment property, as including, among other things, recommendations on investment policies or strategies, portfolio composition, or recommendations on distributions, including rollovers, from a plan or IRA.
And, a mere suggestion to use certain investment policies can result in fiduciary status. The DOL defines a fiduciary recommendation as:
For purposes of this section, ‘‘recommendation’’ means a communication that, based on its content, context, and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action.
So, what does this mean? First, if you don’t want to be a fiduciary for that purpose, the safest bet is to avoid suggestions of investment policies or providing a sample IPS. A reasonable question is . . . if you didn’t mean for your comments or the sample document to suggest the use of the policies or IPS, why did you bring it up?
On the other hand, if you are willing to be a fiduciary for this purpose, make sure that you are a fiduciary (that is, that the recommendations/IPS are prudent under the circumstances). Keep in mind that ERISA’s prudent process rule is based on generally accepted investment theories and prevailing investment industry standards. Your policy recommendations should be based on those concepts (absent an explicit instruction from the investor to the contrary).
If you have read to this point, you are probably thinking about these issues in the context of retirement plans. That’s valid, but only partially so. Beginning April 10, these rules also apply to IRAs. Do you suggest investment policies to IRA owners or supply an IPS? If so, the same concepts will apply.
Forewarned is forearmed.
The views expressed in this article are the views of Fred Reish, and do not necessarily reflect the views of Drinker Biddle & Reath.
Part 1- Interesting Angles on DOL’s Fiduciary Rule #1
Part 2 - Best Interest Standard of Care: Interesting Angles on the DOL’s Fiduciary Rule #2
Part 3 - Hidden Preamble Observations: Interesting Angles on the DOL’s Fiduciary Rule #3
Part 4 - TV Stock Tips and Fiduciary Advice: Interesting Angles on DOL’s Fiduciary #4
Part 5 - Level Fee Fiduciary Exemption: Interesting Angles on DOL’s Fiduciary Rule #5
Part 6 - Fiduciary Regulation And The Exemptions: Interesting Angles on the DOL’s Fiduciary Rule #6
Part 7 - Fiduciary Regulations And The Exemptions : Interesting Angles on the DOL’s Fiduciary Rule #7
Part 8 - Designated Investment Alternatives: Interesting Angles on the DOL’s Fiduciary Rule #8
Part 9 - Best Interest Standard and the Prudent Man Rule: Interesting Angles on the DOL’s Fiduciary Rule #9
Part 10 - FINRA Regulatory Notice: Interesting Angles on the DOL’s Fiduciary Rule #10
Part 11-ERISA and the Internal Revenue Code: Interesting Angles on the DOL’s Fiduciary Rule #11
Part 12- Potential Prohibited Transactions: Interesting Angles on the DOL’s Fiduciary Rule #12
Part 14- Investment Suggestions: Interesting Angles on the DOL’s Fiduciary Rule #14
Part 15- Best Interest Contract Exemption: Interesting Angles on the DOL’s Fiduciary Rule #15
Part 16 - Adviser Recommendations: Interesting Angles on DOL’s Fiduciary Rule #16
Part 17 - Level Fee Fiduciary: Interesting Angles on DOL’s Fiduciary Rule #17
Part 19- Interesting Angles on the DOL’s Fiduciary Rule #19: Advisors' Use of "Hire Me" Practices.
Part 20- Three Parts of "Best Interest Standard of Care": Interesting Angles on the DOL’s Fiduciary Rule #20
Part 22-Banks and Prohibited Transactions: Interesting Angles on the DOL’s Fiduciary Rule #22
Part 24 - Differential Compensation Based on Neutral Factors: Interesting Angles on DOL’s Fiduciary Rule #24
Part 25-Reasonable Compensation Versus Neutral Factors: Interesting Angles on the DOL’s Fiduciary Rule #25
Part 27 - Definition of Compensation: Interesting Angles on DOL’s Fiduciary Rule #27
Part 28 - What About Rollovers that Aren’t Recommended?: Interesting Angles on the DOL’s Fiduciary Rule #28
Part 29- Capturing Rollovers: What Information is Needed?: Interesting Angles on the DOL’s Fiduciary Rule #29
Part 31 - “Un-levelizing” Level Fee Fiduciaries: Interesting Angles on the DOL’s Fiduciary Rule #31
Part 33- Discretionary Management, Rollovers and BICE: Interesting Angles on the DOL’s Fiduciary Rule #33
Part 34- Seminar Can Be Fiduciary Act: Interesting Angles on DOL’s Fiduciary Rule #34
Part 35- Presidential Memorandum on Fiduciary Rule: Interesting Angles on the DOL’s Fiduciary Rule #35
Part 36 -Retirement Advice and the SEC: Interesting Angles on the DOL’s Fiduciary Rule #36
Part 37 - SEC Retirement-Targeted Examinations: Interesting Angles on the DOL’s Fiduciary Rule #37
Part 42 - Rollovers under DOL’s Final Rule: Interesting Angles on DOL’s Fiduciary Rule #42
Part 43 - BICE Transition: More Than the Eye Can See - Interesting Angles on DOL’s Fiduciary Rule #43
Part 44 - Basic Structure of Fiduciary Package (June 9): Interesting Angles on DOL’s Fiduciary Rule #44
Part 47- “Real” Requirements of Fiduciary Rule: Interesting Angles on DOL’s Fiduciary Rule #47
Part 49- The Requirement to Disclose Fiduciary Status: Interesting Angles on the DOL’s Fiduciary Rule #49
Part 50- Fourth Impartial Conduct Standard: Interesting Angles on DOL’s Fiduciary Rule #50
Part 51- Recommendations to Transfer IRAs: Interesting Angles on the DOL’s Fiduciary Rule #51
Part 54 - The DOL’s RFI and Possible changes to BICE: Interesting Angles on the DOL’s Fiduciary Rule #54
Part 55- DOL’s RFI and Recommendation of Annuities- Interesting Angles on DOL’s Fiduciary Rule #55
Part 58- Recommendations to Contribute to a Plan or IRA- Interesting Angles on the DOL’s Fiduciary Rule #58
Part 60- What the Tibble Decision Means to Advisers: Interesting Angles on the DOL’s Fiduciary Rule #60
Part 61- The Fiduciary Rule, Distributions and Rollovers: Interesting Angles on the DOL’s Fiduciary Rule #61
Part 65- Unexpected Consequences of Fiduciary Rule - Interesting Angles on the DOL’s Fiduciary Rule #65
Part 66- Concerns About 408(b)(2) Disclosures: Interesting Angles on the DOL’s Fiduciary Rule #66
Part 67- From the DOL to the SEC - Interesting Angles on the DOL’s Fiduciary Rule #67
Part 68-Recommendations of Distributions - Interesting Angles on the DOL’s Fiduciary Rule #68
Part 69- Compensation Risks for Broker-Dealers and RIAs: Interesting Angles on the DOL’s Fiduciary Rule #69
Part 70-The Fiduciary Rule and Recordkeeper Services: Interesting Angles on the DOL’s Fiduciary Rule #70
Part 71- Recordkeepers and Financial Wellness Programs: Interesting Angles on the DOL’s Fiduciary Rule #71
Part 72-The "Wholesaler" Exception: Interesting Angles on the DOL’s Fiduciary Rule #72
Part 74 -One More Fiduciary Issue for Recordkeepers: Interesting Angles on the DOL’s Fiduciary Rule #74
Part 75 - The Fiduciary Rule: Mistaken Beliefs-Interesting Angles on the DOL’s Fiduciary Rule #75
Part 77 - The Fiduciary Rule: Mistaken Beliefs (#2): Interesting Angles on the DOL’s Fiduciary Rule #77
Part 78 - The Fiduciary Rule: Mistaken Beliefs (#3): Interesting Angles on the DOL’s Fiduciary Rule #78
Part 79 - The Fiduciary Rule: Mistaken Beliefs (#4)- Interesting Angles on the DOL’s Fiduciary Rule #79
Part 80 - Enforceable During Transition?: Interesting Angles on the DOL’s Fiduciary Rule #80
Part 83 - Part 2 of Undisclosed (and Disclosed) 12b-1 Fees: Interesting Angles on the DOL’s Fiduciary Rule #83
Part 85 -The Fiduciary Rule: What’s Next (Part 1)? : Interesting Angles on the DOL’s Fiduciary Rule #85
Part 86- The Fiduciary Rule: What’s Next (Part 2)?: Interesting Angles on the DOL’s Fiduciary Rule #86
Part 87 - The Fiduciary Rule: What’s Next (Part 3)?: Interesting Angles on the DOL’s Fiduciary Rule #87
Part 88 -The Fiduciary Rule: What’s Next (Part 4)? : Interesting Angles on the DOL’s Fiduciary Rule #88