Action Plan for DOL Fiduciary Rule April 2016

Leading Securities Professionals in Compliance
RND Resources Inc
The DOL Action Plan
Implementing the DOL Rule
An action plan for bringing compliance teams, products, and
staff in line with the new fiduciary rules adopted April 2016.
818.657.0288 Los Angeles | New York www.finracompliance.com
June 2016
1

The DOL Action Plan
• Introduction
• From the Investors Perspective
• Commission vs Fee Transactions
• Steps to Plan Ahead
• Impacted Investment Accounts
• Preparing for Compliance
• BIC & Commissions vs Fee’s
• Using BIC to remedy Compensation Conflicts
• Action Steps
• Summary
• RND Resources Compliance Support
ERISA
ERISA- the Employment Retirement
Income Security Act provided DOL
with authority to regulate retirement
and benefit plans established by
employers and the financial services
industry since 1974.
Table of Contents
2
DOL Fiduciary Rule: Adopted April 6, 2016 | Effective April 10, 2017 | Mandatory Compliance January 1, 2018

Introduction
In April 6, 2016, the Department of Labor adopted the fiduciary standard rule change in an effort to further
protect retirement investors from excessive fees and unsuitable products. The rule marks a sweeping change in
how advisors are allowed to “interact with” and “present to” retired and senior investors, or those investing in
retirement products. The rule change affects ERISA plans and various IRA’s.
The rule update was long anticipated and affects nearly $3 trillion in client assets generating $19 billion in
revenue. Its implementation is expected to disrupt the entire industry along with compliance teams and
corporate executives shifting compensation and product focus to meet the new regulatory standard.
Labor Secretary Thomas Perez
“We are putting … a fundamental protection into the American
retirement landscape. A consumer’s interest must now come before an
advisors financial interest. “
DOL Rule Action Plan – Eff: Apr2017
Effective
April 10 2017
3
Mandatory Compliance Date: Jan 1, 2018

From the Investor POV
 In coming years baby boomers will inherit approximately $8.4 trillion from grandparents, parents and others.
 The 65+ population segment is projected to double to 71.5 million by 2030.
 2 out of 3 Baby Boomers are still in the active workforce right now.
 An estimated 10,000 boomers will turn 65 every day for the next 13 years.
Baby Boomers are living longer and will have fewer people available to
support them during their retirement. This makes it very important for them
to be investing in their retirement and future care needs right now.
As baby boomers retire, many will roll over their 401(k) plans to IRA’s.
Financial advisors and investment planners stand to gain a lot by serving this
demographic and have an obligation to help them make good decisions.
4

Time to Take Action – New Fiduciary Rule effective April 10, 2017
Commission based advisors will find the suitability
standard replaced with the fiduciary standard.
Some will want to switch to fee-based
transactions. Others will want to use the BIC
exemption. Expect changes the way you do
business, can increase costs, and nullify existing
essential relationships.
Fee-based advisors may need to
use the Best Interest Contract
Exemption for roll-overs of
commission based accounts. Get
familiar with the BIC exemption
so you can implement it.
The rule change will impact disclosure
requirements and marketing
collateral; and may lead to changes in
marketing strategy. Become familiar
with do’s and don’ts associated with
the rule change.
Full Compliance
Mandatory
January 1, 2018
The rule will have an industry wide impact on product
selections, features, and sales. Be prepared to
implement product changes and add new products
over the coming months and years. Staff training and
compliance procedure changes will be part of the
transition.
5

Risk in waiting
As many compliance officers know, there’s an inherent risk in delaying preparation for the inevitable. The cost
of catching up to current standards at the last minute leaves an organization open to hazardous mistakes. Often
times when things are left to the last minute, something else just as pressing comes up adding an unanticipated
layer of difficulty in getting the work done. Don’t leave yourself open to this threat. Plan ahead, prepare now.
Plan Ahead
Getting familiar with the DOL conflict of interest
rule change and understanding how it will
affect your organization is key to establishing
control over the situation. Allow several weeks
to complete this step.
Be prepared for:
• Clients asking questions
• Sales staff asking questions
• New investment products
• Changes to policies and procedures
• Competitors gaining an advantage
• FINRA posing related exam questions
6
Effective Date: Apr 10, 2017

Which types of Accounts are impacted by the Rule?
The DOL Rule affects qualified ERISA pension plans, IRA’s, Rollovers, HSAs, MSAs
and more
ERISA Plans
• Defined Contribution Plans
• Defined Benefit Plans
• 403(b) plans (hospitals, schools, municipalities)
IRAs
• Traditional
• Roth
• SEP
• Simple
Savings Plans
• Medical Savings
• Health Savings
• Education Savings
• Rollovers from 401(k)
7

Steps to Take (Effective Deadline: April 2017)
Compliance with the rule is required at April 2017, allowing adequate time for firms and service
providers to make adjustments and prepare. Additionally, the DOL has adopted a “phased in”
approach for implementing the BIC exemption. The phased in period is until January 2018 and is
intended as a window for financial institutions and advisers finish the transition.
June - August
Discuss the change with employees, vendors, and
service providers; giving everyone a chance to
weigh in on their concerns and adjust.
September - October
Determine your best course of action for changes
to existing clients & products. Begin establishing
the changes.
8

Steps to Take (Effective Deadline: April 2017)
Talk to affected clients early in the process. Chances are they will hear the news soon, if not
already, so be proactive and make sure they hear it from their investment firm early. Firms
reaching out to clients now will prepare their clients for the transition
and help it go smoother.
October - December
Develop training programs and new disclosures.
Alert clients of forthcoming changes and explain
why the change is happening.
January - April
Test your systems for compliance and refine any
areas as needed. Begin printing documentation.
Move qualified accounts to fee arrangements.
Last day:
April 9 2017
9

Choices to make
Bottom line: Qualified plans will be subject to fiduciary rules, and suitability is no longer an
option. Firms serving retirement investors will have the choice of BIC transactions or RIA type
fee-based advisory plans.
Using BIC – Best Interest Contract
Requires rigorous justification when choosing
commissionable products.
A few reasons use it may include;
• Legacy accounts on commissionable products,
• Investors who prefer not to change their
investments,
• Large institutions that support BIC compliance.
Fee-based Transactions
SEC registered RIAs already use
fiduciary standard business
models and ERISA standards.
However, many will still use BIC,
especially for rollovers and IRA
transfers.
10

Using BIC. Sometimes or all-the-time.
Contracted BIC
Used for advisors who are being
compensated by someone other than the
client. Requires a written, signed contract
between the client and the firm.
Acknowledgement advisor will still put clients
interests first.
Transactional BIC
Transactional BICs are used due to
the nature of the transaction,
such as 401(k) rollovers. These are
the easiest to invoke.
Non-Level Fee Transactions
The DOL stresses that commissions or other
transaction based compensation is explicitly
excluded from Level Fee Transaction status. All
these types of transactions must comply with
stringent BIC standards.
No bonuses,
quotas, contests,
awards,
etc…allowed Level Fee Transaction
Level fee transactions mean the fee is based on a
fixed % of the value of AUM, or “set” so as to not
interfere with the recommendation. Streamlined
“Transactional BIC” documents are required
acknowledging fiduciary status.
11

Steps firms can take now
Investigate Read up to understand the rule and how it will affect your business. Talk
to stakeholders and staff.
Analyze Review clients with qualified plans, commissionable products, variable
annuities, spreads, etc. Determine the rules impact on income, profitability, & business.
Divide Sort clients into groups based on the how they are affected. Determine which
clients it makes sense to change to a fee-based model and which ones fall under BIC. It’s
possible some accounts should be handed off to a different custodian.
Begin Start preparing letters to clients and service providers. Educate clients regarding
changes. Develop changes to policies and procedures. Test systems for compliance.
12

Summary
The new DOL fiduciary rule standard will require significant changes to existing business
practices and compliance programs in order to ensure documentation and disclosure
regulations are followed. Firms can expect regulatory authorities like FINRA and SEC to
be watchful of how firms integrate changes within the existing business model and will
analyze the use of BIC transactions, as well as transactions for retirement investors.
RND urges firms to be mindful of the purpose behind the DOL fiduciary rule change and
adopt a company culture which represents the underlying theme, “protect senior
retirement investors and their assets by acting in their best interest”. Regardless of the
underlying nature of the transaction, acting in the best interest of the client will help
keep firms, compliance officers, and advisors out of trouble.
13

RND Resources can help
RND Resources specializes in assisting BDs and RIAs with regulatory compliance. Whether its
updating books and records, navigating complex rule changes such as this one from DOL,
implementing a regulatory software solution, or any number of situations, we’re able to provide
consultation and support on a fixed-fee, hourly rate, or monthly retainer fee.
On-going Compliance Support
• RIA and BD Registration services
• FinOP & CCO service
• FOCUS Filing, SIPC, annual reports & schedules
• Form ADV filing, amendments, and schedules
• Annual compliance reviews
• Marketing review
Consultation
• New Firm Formation, NMA, CMA
• CyberSecurity testing and policies
• Litigation and Expert Witness
• Fintech Firm Compliance
• Fintech Program Development
Audit & Tax Services too !
14

About RND Resources Inc
RND is a full-service regulatory compliance consulting firm for the Financial Services industry. Our team is
comprised of seasoned compliance and registration experts who are available to assist businesses with even
the most complex regulatory requirements. We use proprietary trading, tools, and back office software to
develop fully integrated solutions customized to meet your strategic goals and regulatory needs.
Full Vertical Integration
• Full Service Brokerage Support
• On-Site Audit Services
• Expert Regulatory Consulting
• Customized Compliance Programs
818.657.0288 Los Angeles | New York www.finracompliance.com 15
BDs
FundsRIAs

RND Resources Inc
Headquarters
21860 Burbank Blvd, #150
Woodland Hills CA 91367
Contact: Amie Singer, Communications
Email: amie@finracompliance.com
Phone: 818.657.0288
Contact us for more information
DOL Rule Action Plan – Effective: Apr2017 | Mandatory Compliance Jan 1, 2018
The End
16
Disclaimer: This presentation is intended for informational purposes only and should not be considered a replacement for research,
investment advice, legal opinion, consulting, or otherwise. For additional information contact RND Resources Inc | Los Angeles CA

Action Plan for DOL Fiduciary Rule April 2016

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to Action Plan for DOL Fiduciary Rule April 2016

Similar to Action Plan for DOL Fiduciary Rule April 2016 (20)

Recently uploaded

Recently uploaded (20)

Action Plan for DOL Fiduciary Rule April 2016