IRA

So I'm a Fiduciary; What Now?

August 8, 2016

It's been a few months since the release of the fiduciary rule. So, what now?

Now that it's been a few months since the release of the final Department of Labor (DOL) fiduciary rule and we have collectively had time to begin coming to term with what we think it says, what do financial advisors (advisors) do now? Do you need to do anything? Does your broker/dealer (BD) handle it all?

The DOL fiduciary rule made very clear that beginning April 10, 2017, advisors and the financial institutions (in most cases, the BD) they operate through that recommend products for compensation to IRA and employer-sponsored retirement plans are now fiduciaries as defined by ERISA and must act accordingly. The DOL imposed several behavioral and written requirements as a result of this rule to fulfill those fiduciary obligations, but what does that mean for you as an advisor? The quick-and-dirty answer is to check with your broker/dealer. Yet, because many BDs are still navigating the waters of the DOL rule, a larger discussion may help clarify some points.

Whether you are directed by your firm to operate under the Best Interest Contract Exemption (BICE), now referred to as PTE 2016-01, or PTE 84-24, there are several requirements that must be met when receiving variable compensation (e.g., commissions and/or third-party payments). 
 

Conditions for Compensation under BICE/PTE 2016-01 and PTE 84-24

                                     BICE/PTE 2016-01 PTE 84-24
Impartial Conduct Standards X X
Fiduciary Acknowledgment X  
Disclosures
  • Contractural
  • Transactional
  • Website
  • Presale
  • Ongoing
Written Contract X  
Written Approval   X
Warranties/Policies and Procedures X  
Designated Conflict Officer X  
Notification to DOL X  
Recordkeeping and Access X X
Compensation
  • Reasonable compensation
  • Commissions, trailing commissions, sales load, 12b-1 fees, and revenue sharing permitted
  • Design compensation structure that will not misalign interests of advisor versus client
  • Reasonable compensation
  • Gross dealer concessions and overrides permitted
  • Commissions exclude revenue sharing, administrative fees, and marketing payments
Contract Terms
  • Allow for participation in class action
  • Allow for arbitration
  • Allow waiving rights to contractural punitive damages or recissions
 

Both advisors and financial institutions are responsible for acting as fiduciaries and ensuring advice is impartial (i.e., acting in the client's best interests). Moreover, with regard to the contract under BICE that creates the binding agreement and mechanism for investors to enforce their rights, the financial institution must be a party to the contract and assume responsibility for advice provided by any of its advisors. Ultimately, all financial professionals involved in IRA and employer-sponsored retirement plan transactions have a heightened level of responsibility to their clients as a result of the DOL rule. 

So what now? First, check with your financial institution or broker/dealer to see how your firm plans to proceed. Then, prepare yourself and for the potential changes you will face as a result of becoming a fiduciary, both behaviorally and procedurally. 

We will continue to keep you posted on issues related to the fiduciary rule as guidance is provided by the Department of Labor.

If you have any additional questions, please feel free to contact Retirement Strategies Group at (800)722-2333, ext. 3939, or e-mail us at RSG@PacificLife.com.

 

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Picture of Caroline Elrod

Caroline Elrod is a Retirement Strategies Consultant with the Retirement Solutions Division at Pacific Life. She brings several years of industry experience to her role that includes tax planning with insurance products. Caroline enjoys educating financial advisors on creative and practical solutions to business, estate and retirement planning concerns.

Pacific Life, its distributors, and respective representatives do not provide tax, accounting, or legal advice. Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor or attorney.

Pacific Life is a product provider. It is not a fiduciary and therefore does not give advice or make recommendations regarding insurance or investment products.

Pacific Life refers to Pacific Life Insurance Company and its affiliates, including Pacific Life & Annuity Company. Insurance products are issued by Pacific Life Insurance Company in all states except New York and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state. Each insurance company is solely responsible for the financial obligations accruing under the products it issues. 

Variable insurance products are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company (Newport Beach, CA) and an affiliate of Pacific Life & Annuity Company. Variable and fixed annuity products are available through licensed third parties.

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