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

1. 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

2. “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

3. 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

4. “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

5. 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

6. “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

7. 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

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

9. 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

10. 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

11. 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

12. 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

13. 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

14. ICI Resource Center on DOL Fiduciary Rule
May __, 2016
Overview of DOL Fiduciary Rule