Retirement advisors are less than confident about exactly how to be compliant during the transition period for the Department of Labor’s fiduciary rule—and even though full implementation of the rule has been delayed, there are still actions they need to take.
Financial Advisor IQ reports that some advisors are receiving different, and sometimes conflicting, advice from different lawyers. The rule requires advisors to inform investors of any potential conflicts of interest and have their clients sign a Best Interest Contract Exemption document if the advisors receive variable compensation for providing retirement advice.
But until the rule is fully implemented on July 1, 2019 (barring any changes to that date following a DOL review of the rule), advisors have other responsibilities. During the transition period, according to the report, retirement advisors who expect to make use of the BICE are required to comply only with so-called Impartial Conduct Standards (ICS). Those specify that BICE users must “adhere to basic fiduciary norms and standards of fair dealing.”
Specifically, advisors cannot charge more than reasonable compensation; they must avoid making materially misleading statements, and they must provide advice in the investor’s best interest.
The Wagner Law Group is cited in the report for an e-mail it sent to clients and other stakeholders saying that the ICS are “somewhat more vague and do not necessarily lend themselves to easy compliance checklists.” Therefore, the firm released a 16-point checklist of its own, of steps for advisors to take to “protect themselves and demonstrate compliance” to the ICS.
And while no single step in the checklist is legally required, nor is the list itself “exhaustive,” the firm recommends that advisors’ actions to make a “demonstrated effort” to meet ICS requirements will have a “powerful factor” in their favor in determining compliance.
“The presence of well-documented client files, formally adopted processes and procedures, evidence of attempts to adhere to such processes and procedures, and internal compliance training will be among the most impactful factors to demonstrate efforts to comply” with the ICS, the law firm says in the report.
The first five items on the list are the following: to identify and code all retirement investors into their proper categories; to ensure written policies and procedures for ERISA and other qualified retirement accounts incorporate ICS and require compliance with those standards; possible revision of agreements to make clear the services for which the firm is and is not acting in a fiduciary capacity; implementation of processes and controls for the delivery of nonfiduciary services to ensure fiduciary advice is not inadvertently provided; and review of compensation structures and revenue streams to identify any potential conflicts.
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