RIAs serving customers on a percentage of assets under management (% AUM) basis, or for some other non-variable form of comp (e.g., flat fees), need to be aware that it is not “business as usual” under the DOL Fiduciary Rule, some version of which is likely to go into effect in 2017. While such advisers are not subject to the full Best Interest Contract Exemption Requirement with its onerous contract and disclosure requirements, they must comply with a lesser requirement, sometimes called “BIC Lite”.
Many RIAs are surprised to learn that they will have this additional requirement because they are already fiduciaries under the 1940 Investment Advisers Act and are often fiduciaries under ERISA and DOL guidance when providing regular advice to Plans. The DOL Rule, however, extends ERISA and Tax Code fiduciary status to one-off investment advice about rollovers from 401ks to IRAs and from commissioned IRA accounts to fee IRA accounts. RIAs who are deemed to be giving (even limited) “investment advice” to Plans and IRA owners will have to comply with BIC Lite.
Specifically, advisers will have to provide a written acknowledgement of fiduciary status to Plan and IRA clients and state that they will abide by certain Impartial Conduct Standards. Under those standards, advisers must act in the client’s best interest, receive only reasonable compensation, and not make misleading statements to clients. RIAs must also document the advice given (including apprising customers of the pluses and minuses of staying where they are versus rolling over) and the reasons for that advice.
In sum, the biggest changes under the DOL Rule apply to folks charging variable compensation (e.g., commissions) to Plans and IRA owners. That said, RIAs should not assume that their current policies and practices bring them into full compliance with BIC Lite. RIAs should check those policies and practices, including documentation procedures, and make sure they are up to snuff.