We Are on the Clock Again…

May 22, 2015
By: Chin Kim

The typical review process takes up to 90 days. Nevertheless, within 50 days on April 14, 2015, the long awaited "Conflicts of Interest" rule was released. We are now on the clock to provide comments back to the DOL. 

What Happened?

As discussed in my prior blog post, The Clock is Ticking…, the DOL is attempting to update sections of Employee Retirement Income Security Act of 1974 (ERISA) that focus on investment advice in order to better align consumer protection with the prevailing retirement plans that are available today, but were either not in existence (e.g., 401(k) plan) or first introduced back in 1974 (e.g., traditional IRA).

Some of the Core Components of the Proposal Include:
Definition of fiduciary changed to include more individuals and includes advice to IRAs

The DOL stated that1:

  • Under DOL's proposed definition, any individual receiving compensation for providing advice that is individualized or specifically directed to a particular plan sponsor (e.g., an employer with a retirement plan), plan participant, or IRA owner for consideration in making a retirement investment decision is a fiduciary.
  • Such decisions can include, but are not limited to, what assets to purchase or sell and whether to rollover from an employer-based plan to an IRA.
  • The fiduciary can be a broker, registered investment adviser, insurance agent, or other type of adviser (together referred to as "advisers" here).
  • Being a fiduciary simply means that the adviser must provide impartial advice in their client’s best interest and cannot accept any payments creating conflicts of interest unless they qualify for an exemption intended to assure that the customer is adequately protected.


Include new Prohibited Transaction Exemption (PTE) – Best Interest Contract Exemption

This new PTE is looking to allow common forms of existing compensation practices, such as commissions and 12b-1 fees, to resume as long as the following key requirements are met by the company (generally the firm that employs the adviser) and the individual adviser:

  • Enter into a written contract with the plan or individual to whom investment advice is given
  • Formal acknowledgement of fiduciary status
  • Provide series of periodic client disclosures (e.g., point of sale and on-going annually)
  • Act in client's best interest "with the care, skill, prudence, and diligence that a prudent person would exercise based on the current circumstances"
  • Warrant that the company has adopted policies and procedures designed to mitigate conflicts of interest
  • Any conflicts of interest in delivering investment advice must be disclosed and a website must be created that discloses the compensation arrangement entered into by the adviser and company to the client
  • Allow clients to hold fiduciary advisers accountable through a private right of action for breach of contract
  • The adviser or company intending to rely on this PTE must inform the DOL of its intent


Allow for carve-outs – acts specifically identified as not constituting fiduciary advice

There were seven that were identified, and they include:

  1. Seller's exception – advice to plan sponsors with 100 or more participants or at least $100 million in plan assets
  2. Sale of Swaps – sale of swap to plan fiduciary
  3. Employees providing advice to plan sponsors – advice by an employee to the plan sponsor if such advice is part of the employee's job responsibilities
  4. Platform providers – platforms for employer plans to select from a variety of investment options
  5. Selection and monitoring services – identifying investment alternatives meeting criteria specified by the plan fiduciary
  6. Financial reports and valuations – providing plan financial reporting and valuation support for plan reporting purposes (e.g., Form 5500)
  7. Investment Education – providing general retirement and investment education to plan participant or IRA owner without mentioning of specific investment products

There are over 700 pages relating to the new proposal. The DOL initially allowed for 75 days for stakeholders to submit comments for review. This has now been extended by an additional 15 days to 90 days.

The Retirement Strategies Group is following this issue closely. If you have any additional questions, please feel free to contact us directly at (800)722-2333 or e-mail us at RSG@PacificLife.com.


1DOL Conflicts of Interests Fact Sheet, p.2



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Chin is currently an Assistant Vice President of Regulatory Compliance in the Retirement Solutions Division at Pacific Life. Previously, he led the Retirement Strategies Group, as Assistant Vice President in the Retirement Solutions Division at Pacific Life. His core responsibilities included sharing and supporting retirement strategies concepts through development of marketing materials and tools and leading the team members in the field and in the home office.

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