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 plan’s decisions ∙ Individualized to plan’s 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 plan’s 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 plan’s 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 advisor’s fees on rollover assets are higher than fees on plan assets

DOL Rollover Opinion Advisory Opinion A ∙ 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 A ∙ If adopted, the DOL fiduciary proposal would replace current guidance under Advisory Opinion A ∙ 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 ∙ 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

DOL’s Fiduciary Rule & Rollovers Marcia S. Wagner, Esq. 99 Summer Street, 13th Floor Boston, MA (617) A PPTX