1. DOL’s Final Rule Defining the Term Fiduciary
Webinar for Insured Retirement Institute Members
Richard K. Matta
Thomas Roberts
Stephen M. Saxon
April 8, 2016

2. Overview of Significant Changes
The Final Regulation –
Overview of Significant Changes
Covered advice
Recommendations of securities and other property including recommendations of rollover amounts, forms, distinctions and investments
Recommendations of third parties (not one’s self or affiliates) to provide management or advice services

3. The Final Regulation (Cont’d.)
Seller’s exception dramatically re-written to now apply only to ERISA plans and IRAs represented by certain types of investment professionals and to plans with $50 million or more in assets

4. “Hire Me”
A recommendation that one’s self or one’s affiliates be hired is non-fiduciary
But investment transactions (including rollovers) undertaken for purposes of receiving one’s advisory or management services are fiduciary

5. PTE 84-24
Available only to cover sales of fixed rate annuity contracts
Variable and fixed indexed products are excluded

6. The Final Best Interest Contract (BIC) Exemption
A kindler, gentler version of the proposal
Much more expansive
- Available to cover both plan-level and participant/IRA holder advice
- Also available to cover robo advice if fee levellized
Far less onerous contract formation and IT intensive disclosures
Remains true to DOL’s “North Star” – an enforceable Best Interest standard of conduct

7. Final BIC: Three Pathways for Relief
For advice to IRA investors (and IRA holders): a bi-lateral BIC contract pathway
For advice to “ERISA investors” (plan fiduciaries not eligible for seller’s exception): a unilateral set of acknowledgements and disclosures pathway
For “Level Fee Fiduciaries” providing rollover recommendations: a “streamlined” pathway

8. Final BIC Relief Elements
Element II(b): The Fiduciary Acknowledgement
The Financial Institution affirmatively states in writing that it and its advisers act as fiduciaries under ERISA, or the Code or both with respect to investment recommendations

9. Final BIC Relief Elements
Element II(c): Impartial Conduct Standards:
The Financial Institution affirmatively states that it and its advisers will
Provide advice that is in the investor’s best interest (i.e., prudent and “without regard” to competing financial or other interests)
Not receive compensation that is in excess of what is reasonable
Not make materially misleading statements about the transaction, fees and compensation or material conflicts

10. Final BIC Relief Elements
Element II(d): Warranties
Financial Institution affirmatively warrants
Adoption of policies and procedures
Identification of material conflicts and BIC compliance officer – identify by name, a person responsible for addressing material conflicts and adherence to impartial conduct standards
No use of quotes, appraisals, etc. except to the extent designed to avoid a misalignment of interests

11. Final BIC Relief Elements
Element II(e): Disclosures
In writing, at or prior to execution of the recommended transaction, the Financial Institution must prominently disclose
Best Interest standard of care
Scope of services
How services will be paid for (e.g., commissions)
Material conflicts of interests
Compensation from third parties
Investor’s right to obtain copies of policies and procedures adopted under II(d) and specific cost and comp disclosures
A link to Financial Institution’s III(b) website
Limitations on universe of products based on proprietary products or third party payments
Contact info
Whether the investment will be monitored
Note – Good faith errors curable within 30 days

12. Final BIC Relief Elements
Element II(f): Ineligible provisions
The Financial Institution may not
Disclaim or limit its or Advisor’s liability
Require waiver or qualification of investor’s right to participate in class action
Require mediation of claims in different venues

13. BIC Relief Pathway #1: A Bi-lateral Contract to Cover Advice to IRA Investors
Requires all of the Relief Disclosure Elements in II(b) – II(f) (fiduciary acknowledgement, impartial conduct standards, warranties, disclosures, absence of ineligible provisions)
In a bi-lateral contract with the retail investor
Manual or e-signature of client needed for new accounts
Negative consent procedure for contracts in place prior to January 1, 2018

14. Why? ERISA enforcement rights
BIC Relief Pathway #2: A Unilateral Set of Acknowledgements and Disclosures Provided to ERISA Plan Investors
All of the same as in Relief Pathway #1, but no bi-lateral contract required
Why? ERISA enforcement rights

15. BIC Relief Pathway #3: For Level Fee Fiduciaries
BIC Relief Elements Required:
II(b) Fiduciary Acknowledgement
II(c) Impartial Conduct Standard
Elements Not Required:
II(d) Warranties
II(e) Disclosures
Special Requirement:
The Financial Institution must document why a rollover recommendation or a switch from a commission-based to a level fee arrangement is in investor’s Best Interest

16. BIC Web Disclosure Freely accessible to public Updated quarterly
Discussion of business model and material conflicts
Typical account fee schedule
Written description of policies and procedures
List of all product manufacturers and other parties providing third party payments
Compensation and incentive arrangements for advisors
Note: Good faith errors may be cured within 7 days

17. Special Relief for Proprietary Product and Third Party Payment Restrictions
Best Interest standard deemed satisfied if –
Investor is provided with written disclosure of restrictions
Investor is fully informed of material conflicts
Financial Institution reasonably concludes restrictions will not cause imprudent recommendations
Compensation is reasonable
Advisors recommendation is not based on Advisor’s own financial interest or interests other than investment objectives, risk tolerance, financial circumstances and needs of investor

18. Questions?