Taking effect earlier this year, the Department of Labor’s Fiduciary Rule expanded the definition for financial advisors with fiduciary duty under ERISA which imposed strict regulations on their advisory relationships. As an employer, your fiduciary liability is a big deal. Here’s what employers need to know to shield themselves from litigation risks.
What is the DOL Fiduciary Rule?
Issued by the federal government, the DOL Fiduciary Rule is a regulation intended to protect retirement investors from conflicts of interest. The rule requires anyone who provides investment advice to 401 (k), IRA and other retirement account owners to abide by a “fiduciary” standard of care.
When did the Fiduciary Rule go into effect?
Although some aspects of the rule became active on June 9, 2017, the DOL established an unexpected transition period and won’t “pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions” until January 1, 2018. After that time, any recommendations made to clients regarding rolling over or investing in funds from a 401(k), pension plan, IRA, or similar account will be subject to fiduciary obligations and must comply with the rule’s “impartial conduct standards.”
What are Impartial Conduct Standards?
According to the most recent guidance, any firms that make recommendations to clients regarding rolling over or investing in funds from a 401(k), pension plan, IRA, or similar account are still expected to adhere to the “Impartial Conduct Standards” component of the Fiduciary Rule throughout the transition period (through January 1, 2018). The DOL has stated that theses impartial conduct standards are “consumer protection standards that ensure that advisers adhere to fiduciary norms and basic standards of fair dealing,” which includes:
- Acting in the client’s best interest which includes the duty of prudence and the duty of loyalty.
- Receiving no more than reasonable compensation which requires that an adviser only receive “reasonable compensation in exchange for the advice and/or services provided to a customer.”
- Refraining from making misleading statements regarding investment transactions, compensation, and conflicts of interest.
Who does the fiduciary rule affect?
Under the new Fiduciary Rule, anyone who offers investment advice for a fee regarding 401(k), 403(b), IRA or other retirement account, regardless of whether that fee is paid by the consumer directly or the product manufacturer. The investment advice given must relate to the products that have an investment component such as recommendations to manage investments but does not include educational or informational advice such newsletters, marketing or general financial concepts.
How will the Fiduciary Rule be enforced?
The Fiduciary Rule will be enforced through litigation as ERISA includes the right to bring lawsuit; once the Best Interest Contract Exemption (BICE) is set in place (January 1, 2018), consumers will also be able to bring breach of contract claims. Additionally, if firms fail to comply with the terms of an exemption, they must self-impose excise taxes, could face fines, penalties and even jail time.
NPPG-FS 3(16) Fiduciary Services
As one of the only retirement plan fiduciary firms that offers independent ERISA 3(16) Fiduciary Services NPPG-FS works with most third-party administrators and recordkeepers to help lighten the load of administrative work and alleviate the burden of liability. Through a complete analysis, we’ll uncover any potential liability exposures and help to close those gaps by handling all the administrative tasks associated with Fiduciary Rule compliance.
More than a service provider or broker, NPPG and NPPG-FS operate as your trusted partner. Call us at 732.758.1577 or contact us online to learn more about 3(16) fiduciary services.
Related Topics:
- What Should You Look for in an Independent 3(16) Administrative Fiduciary?
- The Value of an Independent 3(16) Administrative Fiduciary: What TPA Providers Need to Know to Stay Competitive with Retirement Plan RFPs
- ERISA 3(16) Administrative Service is available to Plan Sponsors; Regardless of the Appointed TPA