This document summarizes key aspects of the Department of Labor's (DOL) final definition of "fiduciary" under the Employee Retirement Income Security Act of 1974 (ERISA). It outlines who will be considered a fiduciary based on the types of accounts, investments, and transactions involved. It also discusses what constitutes a "recommendation" and how to determine if a communication is a recommendation. The document notes disclosure alone is not effective at mitigating conflicts of interest in advice and describes some of the disclosure requirements under the new rule and exemptions, such as the Best Interest Contract Exemption. It provides details on the transition period for compliance with the new regulations.

1. DOL: Final Definition of “Fiduciary”
Impact on Communications Compliance

2. •Who is a fiduciary?
•What’s an “adviser?”
•What’s a “recommendation?”
•What’s NOT a
“recommendation?”
•Disclosure
•Impact of the fiduciary
standard on other regulations
•Q&A
Agenda

3. Who is a fiduciary?

4. In and Out
In
• Agents
• Investment Adviser
Representatives
• Registered
Representatives
Out
• Sorry
In
• IRAs
• Small 401(k)
• Large 401(k)
• 403(b)
• etc.
Out
• Non-qualified
accounts
In
•Variable Annuities
•Indexed Annuities
•Mutual Funds
•Brokerage Accounts
•Fee accounts
•etc.
Out
• Any investment not
permitted for use with
qualified accounts or
IRAs
In
•Account Management
•Buy / Sell / Hold
Recommendations
•Rollovers / transfers
•Portfolio composition
•Advisor / Platform
recommendations
Out
•General Communications
•Education
•Employees
•Information provided to
expert fiduciaries
• Swaps / Securities Swaps
“Advisers” Account Type
Investments
Transactions &
Recommendations

5. What’s an adviser?

6. By using the term ‘‘adviser,’’ the Department does not intend
to refer only to investment advisers registered under the
Investment Advisers Act of 1940 or under state law. For
example, as used herein, an adviser can be an individual or
entity who is, among other things, a representative of a
registered investment adviser, a bank or similar financial
Institution, an insurance company, or a broker-dealer.
What’s an Adviser?

7. The final rule clarifies and rationalizes the definition of
fiduciary investment advice. The rule covers:
recommendations by a person who represents or
acknowledges that they are acting as a fiduciary within the
meaning of the Act or the Code; advice rendered pursuant to
a written or verbal agreement, arrangement, or
understanding that the advice is based on the particular
investment needs of the advice recipient; and advice directed
to a specific advice recipient or recipients regarding the
advisability of a particular investment or management
decision with respect to securities or other investment
property of the plan or IRA.
Who Makes Recommendations?

8. What’s a recommendation?

9. Under the final rule, 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 course
of action.
What is a Recommendation?

10. (b)(1) For purposes of this section, ‘‘recommendation’’ means 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 course of action. The
determination of whether a ‘‘recommendation’’ has been made is an
objective rather than subjective inquiry. In addition, the more individually
tailored the communication is to a specific advice recipient or recipients
about, for example, a security, investment property, or investment
strategy, the more likely the communication will be viewed as a
recommendation. 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. Furthermore, a
series of actions, directly or indirectly (e.g., through or together with any
affiliate), that may not constitute a recommendation when viewed
individually may amount to a recommendation when considered in the
aggregate. It also makes no difference whether the communication was
initiated by a person or a computer software program.
Defining Recommendations

11. What’s NOT a
recommendation?

12. (2) The provision of services or the furnishing or making
available of information and materials in conformance with
paragraphs (b)(2)(i) through (iv) of this section is not a
‘‘recommendation’’ for purposes of this section.
Determinations as to whether any activity not described in
this paragraph (b)(2) constitutes a recommendation must be
made by reference to the criteria set forth in paragraph (b)(1)
of this section.
Not a recommendation…

13. “To further clarify the meaning of recommendation, the final rule
provides examples of services or materials that are not treated as a
recommendation. These include services or materials that provide
general communications and commentary on investment products
(such as television, radio, and public media talk show commentary,
remarks in widely attended speeches and conferences, and financial
newsletters), marketing or making available a menu of investment
alternatives that a plan fiduciary could choose from, identifying
investment alternatives that meet objective criteria specified by a
plan fiduciary, and providing information and materials that
constitute investment education or retirement education.”
pg 7. REGULATING ADVICE MARKETS: DEFINITION OF THE TERM “FIDUCIARY” CONFLICTS OF INTEREST -
RETIREMENT INVESTMENT ADVICE: REGULATORY IMPACT ANALYSIS FOR FINAL RULE AND EXEMPTIONS
http://www.dol.gov/ebsa/pdf/conflict-of-interest-ria.pdf
What is Not a Recommendation?

14. Disclosures

15. Disclosure alone has proven ineffective to mitigate conflicts in
advice… Some research suggests that even if disclosure about
conflicts could be made simple and clear, it could be
ineffective—or even harmful.
The same gap in expertise that makes investment advice
necessary and important frequently also prevents investors
from recognizing bad advice or understanding advisers’
disclosures.
Disclosure Doesn’t Work
20951, 20981: Federal Register / Vol. 81, No. 68 / Friday, April 8, 2016 / Rules and Regulations

16. “A disclosure regime, standing alone, would not obviate
conflicts of interest in investment advice even if it were
possible to flawlessly disclose complex fee and investment
structures.”
Well, Disclosure Doesn’t Work by Itself
20982 Federal Register / Vol. 81, No. 68 / Friday, April 8, 2016 / Rules and Regulations

17. … the Department does not intend this regulation to change
the scope or effect of ERISA section 514, including the savings
clause in ERISA section 514(b)(2)(A) for state regulation of
securities, banking, or insurance laws. The final rule now
includes an express provision to that effect in a new
paragraph (i). The requirements implemented in the final rule
do not alter the fundamental reporting and disclosure
requirements of the statute with respect to employee benefit
plans, and as such have no implications for the States or the
relationship or distribution of power between the national
government and the States.
…but, disclosure is still required…

18. The Department estimates that it would require one hour of
legal professional time to draft the disclosure needed under
the investment education provision. Therefore, this disclosure
would result in approximately 23,500 hours of legal time at an
equivalent cost of approximately $3.1 million.
The disclosures needed to satisfy the platform provider,
investment education, independent plan fiduciary, and swap
transaction provisions of the final rule are information
collection requests (ICRs) subject to the Paperwork Reduction
Act.
… and we want more of it…
20994 Federal Register / Vol. 81, No. 68 / Friday, April 8, 2016 / Rules and Regulations
Federal Register / Vol. 81, No. 68 / Friday, April 8, 2016 / Rules and Regulations 20995

19. • Fairly disclose the fees, compensation, and Material Conflicts of Interest,
associated with their recommendations. Advisers relying on the
exemption must adhere to the Impartial Conduct Standards when
making investment recommendations.
• The exemption takes a principles-based approach that permits financial
Institutions and Advisers to receive many forms of compensation that
would otherwise be prohibited, including, inter alia, commissions,
trailing commissions, sales loads, 12b-1 fees, and revenue-sharing
payments from investment providers or other third parties to Advisers
and Financial Institutions. The exemption is available for advice to retail
``Retirement Investors,'' including IRA owners, plan participants and
beneficiaries, and ``retail fiduciaries'' (including such fiduciaries of small
participant-directed plans). All Financial Institutions relying on the
exemption must notify the Department in advance of doing so, and
retain records that can be made available to the Department and
Retirement Investors for evaluating compliance with the exemption.
(Some) Disclosure Requirements Best Interest Contract
Exemption

20. What are the “Impartial Conduct Standards?”
Provide Advice With:
•Care
•Skill
•Prudence
•Diligence
What Advisers Need to
Consider:
•Investment objectives
•Risk tolerance
•Financial circumstances
•Needs of the Retirement
Investor
•Without regard to the
financial or other
interests of the Adviser

21. Impact of the
fiduciary
standard on
other regulations
Photo: NY Daily News August 18, 2015

22. § 2510.3–21 Definition of ‘‘Fiduciary.’’
(i) Continued applicability of State law regulating insurance,
banking, or securities. Nothing in this part shall be construed
to affect or modify the provisions of section 514 of Title I of
the Act, including the savings clause in section 514(b)(2)(A) for
state laws that regulate insurance, banking, or securities.
Insurance Laws in Effect

23. Timing

24. Effective Date:
June 7, 2016
•Start preparations
Applicability Date:
April 10, 2017
•Liability kicks in
Transition Period:
April 10, 2017
Through
January 1, 2018
•Prepare for full
compliance
•Notice requirements
•Record keeping
•Designate a person
for oversight
Full Compliance:
January 1, 2018
•Full liability and
compliance
requirements
BICE and Principle Transactions PTE Transition Period

25. Transition Period Details: April 10, 2017 through January 1, 2018
Firms must prepare for full compliance with all the conditions of the exemptions
Safeguard the interests of retirement investors.
Firms and advisers must adhere to the impartial conduct standards,
•Acknowledges their fiduciary status and;
•Describes their material conflicts of interest,
•Disclose whether it recommends Proprietary Products or investments that generate Third
Party Payments
•Notify the Retirement Investor of the limitations placed on the universe of investment
recommendations
Provide a notice to retirement investors that, among other things:
•Addressing material conflicts of interest and;
•Monitoring advisers' adherence to the impartial conduct standards
Designate a person responsible for:
Meet record keeping requirements

27. Q&A
Stephen Selby, CRCP
Assistant Vice President, Regulatory Services
Office Phone: (860) 285-7858
sselby@LIMRA.com
An Online account is just a click away: https://www.limra.com/Request_Access/