Compliance

Provider Communication Rules Scrutinized in DOL Fiduciary FAQ

On the high-level question, “Is every communication with a financial adviser about retirement accounts a fiduciary recommendation?,” DOL answers simply, “No.”

By John Manganaro editors@assetinternational.com | January 17, 2017
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The future of the Department of Labor (DOL) fiduciary rule reform may be in jeopardy as Republicans take full control of Congress and the Presidency—but it seems that the regulator will push ahead on implementing stronger conflict of interest standards unless it is expressly ordered to halt.  

Specifically, the DOL this week released a second “Fiduciary Rule FAQ” document, adding another 20 or so pages to the thousands already published outlining the broad and narrow facets of the new conflict of interest standards to be applied under the Employee Retirement Income Security Act (ERISA). The FAQ document focuses on both the new fiduciary rule and its related prohibited transaction exemptions; these are slated to begin to take effect in just about 12 weeks under the timeline set by the Obama Administration, with various enforcement deadlines extending into 2018.

Questions covered in the second FAQ document range from the general to the specific. For example, on the high-level question, “Is every communication with a financial adviser about retirement accounts a fiduciary recommendation?,” DOL answers simply, “No.”

As the document explains, covered investment advice is defined as a recommendation to a plan, plan fiduciary, plan participant and beneficiary, individual retirement account (IRA), or IRA owner for a fee or other compensation, direct or indirect. As a threshold issue, DOL says, the communications must be a “recommendation” to be fiduciary investment advice. A “recommendation” is a communication that, “based on its content, context, and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular investment-related course of action.”

The DOL document makes it clear that it is very easy to step over the line into the territory of fiduciary advice: “Providing a selective list of securities to a particular advice recipient as appropriate for that investor would be a recommendation as to the advisability of acquiring securities even if no recommendation is made with respect to any one security.” Broadly speaking, the more individually tailored the communication is to a specific advice recipient or recipients, the more likely the communication will be viewed as a recommendation.

NEXT: FAQ highlights communication pitfalls 

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