What Can you Expect from the ERISA Fiduciary Advice Rule on June 9th?

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Corey Schechter

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Serving San Diego, CA

  • Serving San Diego, CA

  • Credit cards accepted, Fixed hourly rates, Fixed fees available

Associate at firm Butterfield Schechter LLP

Serving San Diego, CA

Credit cards accepted, Fixed hourly rates, Fixed fees available

A new ERISA fiduciary rule was supposed to go into effect in April. However, the Department of Labor delayed the new rule for 60 days to review the regulation and determine how the rule would impact investors. Those 60-days are almost up. On June 9th, the transition period for the Fiduciary Rule will begin.

The Fiduciary Rule will effectively extend the definition of who might be considered a fiduciary with duties essentially equivalent to those found under ERISA. Advisers who were not previously considered to be fiduciaries will be fiduciaries under the new law, and subject to fiduciary duties. The purpose of this new rule is to better protect plans, participants, and beneficiaries from “conflicts of interest, imprudence, and disloyalty.”

According to the DOL summary, “the final rule treats persons who provide investment advice or recommendations for a fee or other compensation with respect to assets of a plan or IRA as fiduciaries in a wider array of advice relationships.”

The new Fiduciary Rule applies to certain advice for a fee, including recommendations as to the advisability of acquiring, holding, or disposing of an investment property, or recommendation as to how securities should be invested after they are rolled over or distributed from an IRA or retirement plan.

The Fiduciary Rule will expand the number of fiduciaries. Previously, only fiduciaries of ERISA-governed benefit plans were subject to ERISA’s fiduciary rules and regulations. ERISA covers most voluntarily established, private employer provided pension and retirement plans. However, these standards generally will now also apply to those providing investment advice or recommendations for a fee or other compensation to individual retirement account (IRA) owners. Whether or not this will ultimately be good for investors has been a heavily debated issue not just in Congress but in the financial services industry as well.

Part of the plan provides for a transition period from June 9th until January 1, 2018. During the transition period, there are limited exemptions from the Fiduciary Rule for advisors under the Best Interest Contract Exemption (BICE), Prohibited Transaction Exemption, and Principal Transaction Class Exemption. Advisers who meet these exemptions will be able to delay notifying investors of their fiduciary status and the Impartial Conduct Standards.

During the transition period, fiduciaries who meet one of the exemptions still need to comply with the Impartial Conduct Standards. This requires fiduciaries to:

  • Provide advice which is in the best interests of their clients;
  • Avoid making misleading statements; and
  • Charge no more than reasonable compensation for services.
  • The DOL and IRS may be relaxing enforcement during the transition period. The DOL will concentrate on “compliance assistance” rather than enforcement during the transition period. The IRS has also indicated they will not seek penalties for certain prohibited transactions during the transition. After January 1, 2018, the Fiduciary Rule will go into full effect, and advisers looking to avoid fiduciary status must meet all requirements for a given exemption.

    Advisers and fund managers who become fiduciaries after June 9th will need to abide by the Impartial Conduct Standards. Fiduciaries should also review their communications and materials to make sure they are in compliance with their fiduciary duties, and if necessary, comply with ERISA regulations.

    If you have any questions about the new Fiduciary Rule and how it may affect your company or investments, contact your ERISA attorneys. Butterfield Schechter LLP is San Diego County’s largest firm focusing its law practice on ERISA and employee benefits. Our firm can help you maintain compliance with ERISA fiduciary duties, avoid penalties, and represent you in ERISA litigation. Contact our office today with any questions on the new Fiduciary Rule and its requirements.

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