The expanded definition of “Fiduciary” is complex. The prohibited transaction exemptions are evenmore complex. How can we keep it all straight? How can we understand how it will affect you?
Let’s start with the policy reasons behind the DOL guidance. The final guidance package includes a White House Fact Sheet, DOL Fact Sheet, FAQs, and 396-page Regulatory Impact Analysis, as well as the preamble to the regulation and prohibited transaction exemptions. Those documents reveal the following concerns, motivations, and goals for the new rules1:
Americans’ retirement security is at risk.
“Middle class economics means that Americans should be able to retire with dignity after a lifetime of hard work. But today, the rules of the road do not ensure that financial advisers’ act in their clients’ best interest when they give retirement advice.” 2
Conflicted advice costs Americans a lot of money.
- Conflicts of interest in retirement advice cost America’s families an estimated $17 billion a year. 3
- “An estimated $1.7 trillion of IRA assets were invested in products that generally provide payments that generate conflicts of interest.”4
Plan sponsors and participants receive conflicted advice from non-fiduciaries.
- “Under ERISA and the Code, if these advisers are not fiduciaries, they may operate with conflicts of interest that they need not disclose and have limited liability under federal pension law for any harms resulting from the advice they provide.”5
- Unless they are fiduciaries, brokers and advisers “are free under ERISA and the Code,
not only to receive such conflicted compensation, but also to act on their conflicts ofinterest to the detriment of their customers.”6
“Retail investors”, which include participants and plan sponsors with less than $50 million under management, are particularly exposed.
- Small business sponsors of small plans “are more like retail investors compared to large companies that often have financial departments and staff dedicated to running the company’s employee benefit plans.”7
1 The Department of Labor has collected each of the regulations, exemptions, and related documents on a “Conflict of Interest Final Rule” page, available at www.dol.gov/ebsa/regs/conflictsofinterest.html. Each of the quotes in this post are located within those resources.
2 White House Fact Sheet: Middle Class Economics: Strengthening Retirement Security by Cracking Down on Conflicts of Interest in Retirement Savings, April 6, 2016, available at https://www.whitehouse.gov/the-press-office/2016/04/06/fact-sheet- middle-class- economics-strengthening- retirement-security.
5 81 Fed. Reg. 20,946 (Apr. 8, 2016).
6 81 Fed. Reg. 20,946, 20,956 (Apr. 8, 2016).
7 81 Fed. Reg. 20,946, 20,981 (Apr. 8, 2016).
“Recommendations to retail investors and small plan providers are routinely presented as advice, consulting, or financial planning services.”8
The new fiduciary standard will protect retirement savers and level the playing field for retirement advisers to compete based on the quality of unbiased advice they give. “Having your investment adviser be a fiduciary is important because, under the Department’s regulatory package, it means that they are required to give you advice that is in your best interest, not their own.”9
8 Regulating Advice Markets: Regulatory Impact Analysis for Final Rule and Exemptions, April 2016, available at https://www.dol.gov/ebsa/pdf/conflict-of- interest-ria.pdf.
9 FAQs About Conflicts of Interest Rulemaking, Question 4, available at https://www.dol.gov/ebsa/faqs/faq-conflict-of- interest.html.
Matthew loves to write. He also loves to think, though he’s probably a better writer than a thinker. He does not like to be on camera or in videos. This blog will allow him to write, challenge his ability to think, and, from time to time, test him with video blog entries.
He has a unique blend of legal and practical experience that helps us to serve our clients well. On the one hand, he has more than 12 years of private legal practice experience focusing exclusively on employee benefits, including time as a partner in an employee benefits boutique where he has represented clients in front of the DOL and IRS. On the other hand, he holds his FINRA Series 7 and 66 registrations and serves as the Director of ERISA Services for Qualified Plan Advisors.
Matthew likes to stay active. He provides fiduciary training, Investment Policy Statement design, and vendor oversight to our clients. He is an active member of the Employee Benefits Committee of the American Bar Association Tax Section, serving as Chair of the Defined Contribution Plans Subcommittee. He also has been appointed to the IRS TE/GE Gulf States Council and is a frequent speaker on regulatory developments, fiduciary responsibilities, and retirement readiness.
Most importantly, he stays active with his family. His wife, Laura, is the founder of REbeL, Inc., a not-for-profit organization. His three young boys are mixed up in far too many sports, and they enjoy traveling, watching college football, running with Dad, and rooting for the Huskers.
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