On April 6, 2016, the Department of Labor (“DOL”) issued its final conflict of interest regulations, which significantly expand who is considered a fiduciary when dealing with a retirement account. The new regulations, together with a number of amended and final prohibited transaction exemptions that were concurrently released, exceed 1,000 pages (the “Regulations”),1 and apply to IRAs and to pension and 401(k) plans that are covered by ERISA.
The new Regulations sweep within the concept of “fiduciary” broker-dealers and other financial advisors who provide any investment recommendation to a retirement plan or an IRA. As a fiduciary, a broker-dealer would be required to act in the best interest of its customers and would generally be prohibited from receiving commissions or other variable compensation. In order to receive transaction-based compensation when dealing with a retirement account, a broker-dealer would need to fit the transaction within one of the exceptions or exemptions set forth in the Regulations. As discussed in this article, sponsors and distributors of structured products should review their structured product programs as well as related distribution and compensation arrangements in order to comply with the new Regulations. The Regulations will begin to become effective on April 10, 2017.
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