What Impact Will the DOL Fiduciary Rule Have on Your Plan’s Financial Adviser?

Last Updated: May 16, 2016

As the Department of Labor’s (DOL’s) new, expanded fiduciary rule continues to become clearer (see our recent blog post), it’s important to step back and keep in mind what it means to be a fiduciary to a retirement plan.  The fiduciary standard of conduct is known as the highest standard of conduct under the law.  A fiduciary to a retirement plan, under ERISA, must (1) act solely in the interest of plan participants, and (2) act as a prudent person would act in the same situation.
Under the current definition of fiduciary, many financial advisers are not held to these high fiduciary standards of conduct.  Rather, non-fiduciary investment advisers are held to the less rigorous “suitability” standard.  When the new DOL fiduciary rule becomes effective in April of 2017 there will be many financial advisers who will become fiduciaries with respect to the investment recommendations they are providing to retirement plans and plan participants.  What does this change mean for plan sponsors? It is important for plan sponsors to first determine whether they currently have an investment adviser that is acting in a fiduciary capacity, or whether their investment adviser is a non-fiduciary investment adviser. If the adviser is currently acting in a non-fiduciary capacity, the plan sponsor will need to determine how the advisers services will be changing in order to take their new fiduciary role into account. In order to allow advisers to continue their current business practices once they become fiduciaries, the DOL created the Best Interest Contract Exemption (BICE).  The exemption allows advisers to continue to be paid fees that may, on the surface, suggest a potential conflict of interest.  In order to take advantage of the BICE, advisers must make certain disclosures, acknowledge their fiduciary status, and agree to act in the best interest of the investor, among other things.  The DOL also created a streamlined BICE for “level-fee fiduciaries.”  This streamlined exemption allows investment advisers who only charge level-fees to more easily satisfy the BICE. Although only time will tell how investment advisers will adapt to the new fiduciary investment advice landscape, it seems likely that the streamlined level-fee BICE will encourage advisers who are not currently charging level fees to rethink their business practices.  As the retirement industry begins to become comfortable with the DOL’s fiduciary rule, it is important for plan sponsors to begin asking their investment advisers how they will be adapting and whether their services or fees will be changing. If you have questions about your current service provider setup, or ways you can mitigate your fiduciary risk, contact our ERISA Services Team.
PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.


Pension Consultants, Inc.



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