Overview of Final DOL Fiduciary Rule May __, 2016 Overview of Final DOL Fiduciary Rule

Overview of DOL Fiduciary Rule Department of Labor Final Rulemaking Two main parts: Rule – Definition of fiduciary for purposes of investment advice under ERISA Prohibited transaction exemptions – BIC and others May __, 2016 Overview of DOL Fiduciary Rule

“Investment Advice” Fiduciary Status For a fee or other compensation (direct or indirect) Provider provides “recommendation” relating to securities or other investment property to employee benefit plans, plan fiduciaries, plan participants, IRA owners And either  acknowledges fiduciary status, provides advice based on particular needs of recipient, or directs advice to specific recipient(s) May __, 2016 Overview of DOL Fiduciary Rule

Types of Recommendations Covered Recommendation on how to invest or sell securities/other investment property Recommendation on management of securities/other property investment strategy selection of others to provide advice or management services type of account (brokerage vs. advisory) rollover/distribution May __, 2016 Overview of DOL Fiduciary Rule

“Recommendation” is Trigger What is a “Recommendation”? A communication reasonably viewed as a suggestion to engage in or not engage in a particular course of action Providing a list of appropriate securities is a per se recommendation What is not a “Recommendation”? “Hire me” Providing investment platforms and certain related assistance General communications to wide audiences Qualifying investment education, including matching investments to asset allocation models in limited circumstances May __, 2016 Overview of DOL Fiduciary Rule

Recommendation – Principles for Evaluating Determination depends on content, context, and presentation A series of actions may add up to a recommendation, even if no one action is itself a recommendation “Suggestion” to take or refrain from taking a particular action More individually tailored, more likely a recommendation Standard is objective, not subjective May __, 2016 Overview of DOL Fiduciary Rule

“Investment Advice” Diagram Plan Recommendation TO OR ABOUT Should the investor buy, sell, exchange or hold securities Plan Fiduciary FOR OR Plan Participant OR Compensation (direct or indirect) OR “Management” of securities or other investment property BY A PERSON WHO IRA OR OR IRA Owner Gives guidance under an agreement arrangement or understanding that advice is based on the investor’s particular needs Gives advice directed to a specific investor about whether investor should make investment or management decision Acknowledges ERISA fiduciary status -OR- -OR- May __, 2016 Overview of DOL Fiduciary Rule

Exclusions from Fiduciary Status Transactions with independent fiduciaries with financial expertise (f/k/a “counterparty carve-out”) Fiduciary of plan or IRA Independent of the adviser Plan or IRA fiduciary is either licensed and regulated financial services provider or responsible for managing at least $50 million Other required findings and disclosures May __, 2016 Overview of DOL Fiduciary Rule

Exclusions from Fiduciary Status (continued) Swap and security-based swap transactions Employees of plan/plan sponsor May __, 2016 Overview of DOL Fiduciary Rule

Best Interest Contract or “BIC” Exemption Allows fiduciary adviser to get paid without violating PT rules Same overall structure as proposal, but generally more workable Covers any security or investment product Written contract not always required Required warranty regarding compensation conflicts may make variable compensation practices problematic May __, 2016 Overview of DOL Fiduciary Rule

Overview of DOL Fiduciary Rule BIC Exemption Covered compensation – commissions, sales loads, 12b-1 fees, revenue sharing, etc. Covered recipients – “Retirement Investors” now includes small plans Certain excluded circumstances or situations May __, 2016 Overview of DOL Fiduciary Rule

Level-Fee Arrangement Summary of BIC Conditions (vary by plan type, compensation arrangement and date) Requirement IRA/Non-ERISA Plan ERISA Plan Level-Fee Arrangement Binding written contract    Written fiduciary acknowledgement Adherence to impartial conduct standards Adopt policies and procedures on conflicts Contractual warranties on policies and procedures Initial disclosures Transaction-based disclosures Web disclosure No exculpatory provisions Notification to DOL Recordkeeping means the condition applies as of January 1, 2018 means the condition applies as of April 10, 2017 (along with transition period disclosure requirement) May __, 2016 Overview of DOL Fiduciary Rule

BIC Exemption – Proprietary Products Special requirements for service providers who limit recommendations to proprietary products or investments that generate third party payments Written description of limitation Documentation May __, 2016 Overview of DOL Fiduciary Rule

Grandfathering – Pre-existing Transactions Assets invested prior to April 10, 2017 Continuing compensation Continuing recommendations (best interest standard) Exchanges within mutual fund families (if no increased compensation) Systematic purchase programs Reasonable compensation requirement May __, 2016 Overview of DOL Fiduciary Rule

ICI Resource Center on DOL Fiduciary Rule https://www.ici.org/fiduciary_rule May __, 2016 Overview of DOL Fiduciary Rule