When the U.S. Department of Labor’s (DOL) new fiduciary rule becomes applicable on June 9, 2017, Loring Ward and the advisors with whom we work will become subject to new requirements in order to continue receiving fee-based compensation for investment advice on retirement assets. This guide explains the steps that advisors should take in connection with a rollover from a 401(k) plan to an IRA in order to comply with the new federal rule.

IMPORTANT NOTE: This guide is intended for “level fee” advisors whose fee is based on a fixed percentage of the value of the assets or a set fee that does not vary with the particular investment recommended. The DOL has issued guidance stating that any fiduciary seeking to meet the “best interest” standard (including advisors complying with the “full” BICE) would engage in a “prudent analysis” of the same documented factors and considerations that are required under the Level Fee BICE before making a rollover recommendation. Advisors who are associated with a broker-dealer or who receive commissions or other transaction-based fees may find the checklist contained in this guide helpful, but must consult with the broker-dealer on complying with the new fiduciary rule.

The period from June 9 through January 1, 2018 is known as the rule’s “transition period,” during which the bulk of the original rule’s requirements will not apply. Furthermore, the DOL has stated that during the transition period it “will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions.” The IRS issued a similar non-enforcement policy with respect to IRAs.

The DOL expects to further review the rule during the transition period (including the solicitation of public input), and further changes may very well be effected before the January 1, 2018 full compliance date.

Updated FAQs from the DOL can be found here.

Make Rollover Recommendations in Your Client’s “Best Interest”

When making a rollover recommendation, you must follow certain “impartial conduct standards” that consist of the following requirements:

  • Your recommendation must be in the “best interest” of the client. This does not mean that there is only one “best” recommendation for your client’s situation. This means that you must provide advice that reflects the care, skill, prudence and diligence that a prudent person acting under similar circumstances would use. Also, the advice should be provided based on the investment objectives, needs and risk tolerance of the client, and it should be rendered without regard to your finan­cial interests
  • Your compensation must be reasonable. This is based on a reasonable fee in the market in light of all the services you will provide to the client
  • You may not make any statements about the recommendation, fees, or other relevant matters that are materially misleading at the time you make them

For more information and best practices, read the complete guide.

IRN: R 17-142