Assets get compliant with department of labor

Published on 28 Aug 2020

Assets get compliant with department of labor

 In April 2016, the Department of Labor (DOL) issued its “final rule” on fiduciary responsibilities of those providing investment advice and products to retirement accounts and employee benefit plans. The ruling was in response to President Obama’s request for changes in regulatory oversight of retirement investing after the financial crisis of 2008. In particular, the Obama administration was concerned about potential predatory practices with elderly investors and their life savings. Understanding and complying with this rule is critical to all participants in the wealth management and insurance industry in order for you to retain wallet share and market share. 

Understand the basics:

Here are the important things you need to know about the ruling:

Who’s affected?

 Those who provide investment advice and sell investment products and services related to employee benefit plans and retirement accounts. The rule expands the definition of fiduciary in this context, so the bulk of the impact falls not only on financial advisers and investment representatives per se, but also primarily on plan sponsors, funds, and producers who provide incentives and commissions to advisors.

What’s changed? 

Advisors and sponsors of retirement accounts and employee benefit plans must adhere to an expanded fiduciary standard of putting their clients’ best interests before their own profits and incentives.

What’s the impact? 

Potentially far-reaching effects spanning business, compliance, operations, and technology. Of particular note, disclosure requirements are significantly enhanced.  

How should firms respond? 

If you haven’t begun planning and preparing to meet upcoming deadlines, start now. Some relief is available through one of two exemptions:

  • The Best Interest Contract (BIC) exemption allows financial institutions and their individual brokers and advisors to market and sell investments to retirement investors or “retail” plan and IRA investors.
  • The Principal Transactions (PT) exemption applies to the purchase or sale of certain securities where the fiduciary is the principal.

The BIC in particular is key to helping you retain customers and wallet share. Under the BIC, there aren’t any restrictions on asset type when you satisfy, among other conditions, the following: 

  • Adhere to impartial conduct standards, as defined in the exemption, and adopt policies and procedures to assure adherence. 
  • Acknowledge that advisors are acting as fiduciaries under ERISA or the Internal Revenue Code of 1986 or both.
  • Disclose information related to fees, compensation, and material conflicts of interest.
  • Retain records and provide reports that demonstrate compliance with the exemption. 

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