On April 6, 2016 the Department of Labor's Employee Benefits Security Administration ("EBSA") issued its long awaited final rule redefining a fiduciary investment advisor (also known as the "conflict of interest rule"), greatly expanding who will be considered a fiduciary when providing "investment advice" to retirement plans. This is important to the health care community because most providers sponsor retirement plans for employees - and if there is no fiduciary advisor, the provider is likely responsible. Along with the new rule, EBSA issued new exemptions and revised existing exemptions. The new rule and most exemptions will be applicable on April 10, 2017. Together, the new rule and exemptions directly impact the financial services industry and are expected to result in significant changes in the way many financial institutions provide investment services to ERISA plans and IRAs. The goal is for retirement plan sponsors and IRA owners to receive better (i.e., non conflicted) advice due to the elimination or disclosure of conflicts of interest, although some in the financial services industry predict costs will escalate as advisors exit the market. This article provides an overview of the new rule.
The new rule replaces a five-part test that has been in effect since the inception of ERISA in 1975. Under the new rule, a person is a fiduciary investment advisor if (1) the recipient of the advice is a plan, plan fiduciary, plan participant, plan beneficiary, IRA or IRA owner, and (2) the advice consists of a recommendation about (a) acquiring/holding/sell/exchanging securities/property, as well as how to invest securities/property after they are rolled over/transferred/distributed from a plan or IRA, or (b) the management of securities/property, including recommendations on investment policies or strategies, portfolio composition, selection of others to provide investment advice or management, selection of investment account arrangements (e.g., brokerage verses advisory), as well as recommendations with respect to rollovers/transfers/distributions from a plan or IRA, including whether and in what amount, form and destination such transactions should be made. For this purpose, a "recommendation" means a communication that would reasonably be viewed as a suggestion that the recipient of the communication engage in or refrain from taking a particular course of action. The advisor must acknowledge its fiduciary status, provide the advice pursuant to an agreement or understanding that it is based on the particular investment needs of the recipient, or provide advice to a specific investor on the advisability of a particular investment or management decision regarding securities/property of a plan or IRA.
Originally Published in Birmingham Medical News.
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