Introduction DOL Fiduciary Proposal Broadens scope of advisors

Introduction  DOL Fiduciary Proposal   Broadens scope of advisors

Introduction DOL Fiduciary Proposal Broadens scope of advisors deemed to be fiduciaries Agenda Existing Rule Proposed Fiduciary Definition and Exemptions Proposed Carve-Out for Investment Education Impact of DOL Proposal on IRA Markets Existing ERISA Fiduciary Definition ERISA Fiduciary Status of Advisor

Triggered if investment advice is provided for compensation Existing Definition of Investment Advice (5-Prong Test) Recommending plan investments Regular basis Mutual understanding Primary basis for plans decisions Individualized to plans needs Proposed Fiduciary Definition Fiduciary Status

Covers persons providing investment advice for compensation New 4-prong definition for Investment Advice Making covered recommendations - recommending investments (including rollovers) - recommending investment managers, - giving appraisals, or - recommending other advisors who do any of above Understanding (does not need to be mutual) Individualized or specifically directed to retirement client Considered by client (even if not primary basis for decision) Carve-Outs and Exemptions

6 Carve-Outs from definition of Fiduciary Includes carve-out for Investment Education New exemptions allows fiduciary to receive variable compensation BIC Exemption - Written contract with mandatory terms - Comprehensive disclosures - Range of investments (reasonably necessary asset classes) - Advice limited to covered investment products only Higher compliance costs may encourage advisors to stop serving retirement clients or migrate to asset-based fee model Investment Education

Current safe harbor (IB 96-1) covers 4 categories Plan Information General Financial/Retirement Information Asset Allocation Models Interactive Investment Materials Observations

Applies only to plan participants Asset allocation models and interactive materials may refer to plans investment options but must indicate existence of alternatives New Carve-Out for Investment Education Covers same information categories as current safe harbor Plan Information

General Financial/Retirement Information Asset Allocation Models Interactive Investment Materials Differences Expanded to include retirement income guidance Applies to plan and IRA clients, as well as plan participants Asset allocation models and interactive materials may not refer to plans investment options but must indicate existence of alternatives Must avoid recommending specific investment products Computerized Advice

Computer Model Safe Harbor Allows receipt of variable compensation Model must be expert-certified Advice arrangement must be audited annually Model must utilize participant data Computerized asset allocation by third parties Enables advisor to avoid fiduciary status More freedom fro rollover services Capturing Rollovers Issues arising from cross-selling Potential conflicts of interest

- Advisor develops relationships with plan sponsor and participants - Exploiting trust to sell at unfavorable terms Potential conflict if advisors fees on rollover assets are higher than fees on plan assets DOL Rollover Opinion Advisory Opinion 2005-23A Broadly suggests that if an advisor is a fiduciary, any rollover advice to participants may trigger PT If advisor is not fiduciary, rollover advice will not trigger PT Advisor accepting fiduciary status cannot capture rollover

assets, unless acting in separate non-fiduciary capacity Advisor providing accidental fiduciary advice becomes a fiduciary and is subject to restrictions of the Rollover Opinion Proposed definition of fiduciary advice includes rollover recommendations Effect of Fiduciary Proposal on Rollovers Impact on Advisory Opinion 2005-23A If adopted, the DOL fiduciary proposal would replace current guidance under Advisory Opinion 2005-23A As proposed, any rollover advice would be fiduciary advice Non-fiduciary advisors providing rollover advice would

automatically become plan or IRA fiduciaries Relief under Proposed Exemptions Would give advisors ability to provide rollover advice and earn higher rates of compensation on rollover IRA assets Proposed exemptions entail numerous requirements Protective Measures (BIC) BIC Exemption protection for IRA rollovers Written contract requirement

- Timing: before recommendation - Best interest standard - Policies mitigating effects of differential compensation Disclosures - Pre-transaction chart for compensation - Annual fee activity Protective Measures (PTE 84-24) PTE 84-24 Generally applies only to insurance products and

mutual funds Not available for certain rollovers - Mutual funds - Annuities treated as securities (variable annuities) No written contract or conflicts policies Adherence to best interest standard required DOLs Fiduciary Rule & Rollovers Marcia S. Wagner, Esq. 99 Summer Street, 13th Floor

Boston, MA 02110 (617) 357-5200 www.wagnerlawgroup.com [email protected] A0176218.PPTX

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