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De-regulation May
Be Coming, but the
Fiduciary Rule Isn’t
Going Away.
1
The Fiduciary Standard
Seems Inevitable
“Even if the Trump administration kills the rule, its effects
are here to stay.”1
...
What You Need to Know About the BIC Exemption
3 eaiinfosys.com
What Is the BIC Exemption?
The [DOL] guidance states the BIC Exemption serves as the “primary
exemption for investment adv...
What Is the BIC Exemption Available for?
Investment advice to roll-over an account, even by
advisers acting as discretiona...
6
When Do I Have to Comply?
The Rule’s amended definition of fiduciary advice
will first apply on April 10, 2017. On that ...
Is the BIC Exemption Broadly Available for Recommendations
on All Categories of Assets in the Retail Advice Market, as wel...
Is Compliance with the BIC Exemption Required
as a Condition of Executing a Transaction, such
as a Rollover, at the Direct...
The BIC Exemption Is also
Available for:
•	 Advisers who act as discretionary
fiduciaries to retirement plans and then
pro...
Three Prohibited Transactions
While most prohibited transactions can be avoided if the advisor,
his supervisory entity and...
Under the BIC Exemption, Who Are “Level Fee
Fiduciaries” and What Prohibited Transaction Relief
Is Available to Them?
The ...
Are There Other Ways for Level Fee
Fiduciaries to Obtain Relief?
It should be emphasized that compliance with the streamli...
“The advisory firms…have been striving to move more of their business to the AUM model. The
DOL fiduciary rule…helped the ...
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EAI DOL eBook

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eBook we created to highlight the effects of new DOL regulations and the BIC Exemption. This eBook explores and how EAI technologies aid compliance.

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EAI DOL eBook

  1. 1. De-regulation May Be Coming, but the Fiduciary Rule Isn’t Going Away. 1
  2. 2. The Fiduciary Standard Seems Inevitable “Even if the Trump administration kills the rule, its effects are here to stay.”1 “The advisory world is moving toward a fiduciary standard with or without the DOL rule, financial technology firms contend.”2 “There are RIAs that mistakenly believe that since they receive only fees based upon AUM or hourly fees, they will not have to rely on the BIC [Best Interest Contract] exemption. This is not true.”3 1 John Rekenthaler, “Is the DOL Fiduciary Rule Really So Bad?” Morningstar, November 11, 2016 2 Investment News, “New fintech tools for DOL fiduciary rule launched despite questions of a Trump delay,” November 16, 2016 3 Marilyn Mohrman-Gillis, Managing Director of Public Policy and Communications, CPB Board of Standards, “How to roll out the best-interest contract exemption,” FinancialPlanning, August 22, 2016 2 eaiinfosys.com
  3. 3. What You Need to Know About the BIC Exemption 3 eaiinfosys.com
  4. 4. What Is the BIC Exemption? The [DOL] guidance states the BIC Exemption serves as the “primary exemption for investment advice transactions” involving retail investments advisers and financial institutions that provide advice on investments to retail investors such as plan participants, plan beneficiaries—including HSA owners—,and IRA owners. The guidance further explains that the exemption is “broadly available” for recommendations to retail investors concerning “all categories of assets” on “advice to roll over plan assets,” and advice concerning recommendations on who a customer should hire as an investment adviser or manager.1 1 Amy M. Thompson, “TCB on the BIC: DOL Issues Guidance on Application of the Fiduciary Rule’s New Best Interest Contract Prohibited Transaction Exemption,” Benefits Law Advisor, November 12, 2016 4 eaiinfosys.com
  5. 5. What Is the BIC Exemption Available for? Investment advice to roll-over an account, even by advisers acting as discretionary fiduciaries for the plan or participant’s account, as long as there is no discretionary authority with respect to the roll- over decision. • Investment advice to roll-over plan assets into an IRA, even by advisers acting as discretionary fiduciaries for the plan or participant’s account, as long as there is no discretionary authority with respect to the roll- over decision. 1 Amy M. Thompson, “TCB on the BIC: DOL Issues Guidance on Application of the Fiduciary Rule’s New Best Interest Contract Prohibited Transaction Exemption,” Benefits Law Advisor, November 12, 2016 • Insurance companies and agents, providing investment advice on fixed rates, fixed indexes, and variable annuity contracts (PTE 84-24 is also available for insurance agents providing investment advice on fixed rate annuity contracts). • “Level fee fiduciaries” receiving only a “level fee” in connection with providing investment services or advice, if the fee is disclosed in advance to the investor. • “Robo-advice” in which the provider is a level-fee fiduciary.1 5 eaiinfosys.com
  6. 6. 6 When Do I Have to Comply? The Rule’s amended definition of fiduciary advice will first apply on April 10, 2017. On that same date, the BIC Exemption and Principal Transactions Exemption will become available to fiduciary advisers. At the outset, however, and for a transition period extending until January 1, 2018, fewer conditions will apply to financial institutions and advisers that seek to rely upon the exemptions. 1 DOL Conflict of Interest Exemptions FAQs 6 eaiinfosys.com
  7. 7. Is the BIC Exemption Broadly Available for Recommendations on All Categories of Assets in the Retail Advice Market, as well as Advice on Rolling Assets into an IRA or Hiring an Adviser? Yes. The BIC Exemption is broadly available for a wide variety of transactions relating to the provision of fiduciary advice in the market for retail investments. Under ERISA and the Code, parties providing fiduciary investment advice to plan sponsors, plan participants and beneficiaries, and IRA owners, are not permitted to receive payments creating conflicts of interest unless they comply with a prohibited transaction exemption. Thus, if an adviser or financial institution receives compensation that creates such a conflict of interest (e.g., transaction-based payments such as commissions, or third party payments such as 12b-1 fees or revenue sharing), the transaction generally must meet the terms of an exemption.1 1 DOL Conflict of Interest Exemptions FAQs 7 eaiinfosys.com
  8. 8. Is Compliance with the BIC Exemption Required as a Condition of Executing a Transaction, such as a Rollover, at the Direction of a Client in the Absence of an Investment Recommendation? No. In the absence of an investment recommendation, the rule does not treat individuals or firms as investment advice fiduciaries merely because they execute transactions at the customer’s direction. Similarly, even if a person recommends a particular investment, the person is not a fiduciary unless the person receives compensation, direct or indirect, as a result of the advice. If, however, the firm or adviser does make a recommendation concerning a rollover or investment transaction and receives compensation in connection with or as a result of that recommendation, it would be a fiduciary and would need to rely on an exemption.1 1 DOL Conflict of Interest Exemptions FAQs 8 eaiinfosys.com
  9. 9. The BIC Exemption Is also Available for: • Advisers who act as discretionary fiduciaries to retirement plans and then provide investment advice to a participant to roll over assets to an IRA for which the adviser will provide advice • Recommendations to roll over assets to an IRA to be managed on a going-forward basis by a discretionary investment manager1 1 DOL Conflict of Interest Exemptions FAQs 9 eaiinfosys.com
  10. 10. Three Prohibited Transactions While most prohibited transactions can be avoided if the advisor, his supervisory entity and all affiliates and related parties, receive only a level fee, there are three that cannot. Put another way, there are three recommendations that are, per se, fiduciary in nature and that automatically result in prohibited transactions. Those are: 1. A recommendation to a participant to take a distribution and roll it over into an IRA. 2. A recommendation to IRA owner to transfer his IRA to the advisor. 3. A recommendation to a participant or IRA owner to move from a transaction-based account to a fee-based account.1 1 Fred Reish, “3 IRA Transactions Exempt from DOL Fiduciary Level Fee Rule,” ThikAdvisor, August 23, 2016 10 eaiinfosys.com
  11. 11. Under the BIC Exemption, Who Are “Level Fee Fiduciaries” and What Prohibited Transaction Relief Is Available to Them? The BIC Exemption provides streamlined relief for “level fee fiduciaries” to receive compensation as a result of their provision of investment advice to retirement investors. In general, level fee fiduciaries do not have the sorts of conflicts of interest that give rise to prohibited transactions or require reliance on an exemption. However, there is a clear and substantial conflict of interest when an adviser recommends that a participant roll money out of a plan into a fee-based account that will generate ongoing fees for the adviser that he would not otherwise receive, even if those fees do not vary with the assets recommended or invested. Similarly, investment advice to switch from a commission-based account to an account that charges a fixed percentage of assets under management on an on going basis could be a prohibited transaction. The streamlined level fee provisions of the BIC Exemption are designed to provide relief for these discrete transactions.1 1 DOL Conflict of Interest Exemptions FAQs 11 eaiinfosys.com
  12. 12. Are There Other Ways for Level Fee Fiduciaries to Obtain Relief? It should be emphasized that compliance with the streamlined conditions generally is not the only way for level fee fiduciaries to obtain relief under the BIC Exemption. In most cases, they can also avoid prohibited transactions simply by executing the Best Interest Contract with their customer and complying with the applicable conditions of the full BIC Exemption. Thus, if firms or individual advisers are in doubt about their status as level fee fiduciaries, they have an alternative means of compliance that protects investors’ interests in unbiased investment advice and provides relief from application of the prohibited transaction provisions.1 1 DOL Conflict of Interest Exemptions FAQs 12 eaiinfosys.com
  13. 13. “The advisory firms…have been striving to move more of their business to the AUM model. The DOL fiduciary rule…helped the advisory firms. It accelerated a trend that had already begun.” —John Rekenthaler, “Is the DOL Fiduciary Rule Really So Bad?” Morningstar, November 11, 2016 Be ready for April, 2017 today. EAI has the technology you need to meet the Fiduciary Rule: Aggregate the necessary information from all your sources and applications, including— • Account and customer information from onboarding software • Rep information and credentials from FINRA • Transaction information from multiple sources (NFS, DST, DAZL, DTCC, Pershing) • Flexible, integrated compensation tools Email us for a free assessment of your organization’s readiness to meet the new rule: Kwame.Essieh@eaiinfosys.com 13

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