A DOL Fiduciary Rule Compliance Checklist

Another day, another lawsuit—or that’s how it seems since the Department of Labor adopted its new fiduciary requirements for retirement plan advisors and providers.

Let’s see. In the financial sector alone, we’ve seen suits against Fidelity, American Century, Franklin Templeton, Allianz, New York Life, Cetera and others, in their role as plan sponsors or, in some cases, plan advisors. It’s a great time to be a class-action attorney.

How are you going to stay ahead of emerging legal requirements? Not only do you have to make sure that your business conforms to the new Department of Labor regulations for retirement accounts—which take effect in April 2017—you also have to communicate to your clients that you are expertly and compliantly managing their 401(k) and other retirement plan participants’ hard-earned money.

What’s more, a lot of companies may find themselves on the 401(k) ropes, and they present an opportunity. As an advisor, you can help them sort through the regulations and what they need, and if desired, you can offload the investment decisions to a qualified provider under the 3(38) rule. That insulates both you and the plan sponsor.

The new DOL rule is about 1,000 pages long, and the government has not yet completed its guidance for how the rule is to be followed. Nevertheless, there’s a lot you can do.

Here is a six-point checklist to help you prepare.

Task #1: Know Your Responsibilities as a Fiduciary

We’ve all heard, over and over, that being a fiduciary means putting clients’ interests ahead of your own. But how? And when? Here are the details.

As fiduciaries, you are responsible for demonstrating Care, Skill, Prudence and Diligence in:

• Selecting and maintaining investment choices,
• Ensuring that plan fees (including investment expenses) paid from participant accountsare reasonable, and
• Ensuring that the plan is properlyadministered in accordance withthe plan document, and with ERISA and DOL mandates.

Many of the lawsuits winding through the courts today concern the first two bullets on this list. If you are primarily picking from a menu of high-cost, proprietary products when you put together a plan, you could be vulnerable. Time to look for a firm that’s accustomed to providing fiduciary support.

Disclosure: several companies, including ours, have built their reputation on the ability to provide fiduciary services, freeing the advisor to work with the plan sponsor to outsource fiduciary management of the plan.

Task # 2: Find Out if Your Fees Are on the Level

One of the major changes in how advisors can practice under the new regulations is what’s called “level-fee” compensation. What does this mean? You can’t gain a different level of compensation for one product vs. another in the same category.

So if you’re selling mutual funds, for instance, you will no longer be able to accept higher payouts or trails on certain funds and not others, nor other forms of variable payments. The same goes for annuities, alternative investments, managed accounts or other products. All members of each product category must provide the same return to the advisor. This will help eliminate biases toward higher-paying products, whether they are conscious or unconscious, the DOL believes.

Several products, particularly proprietary offerings, may come into conflict with the new rule. If you have gravitated toward nonconforming products, now is the time to start researching new instruments you can comfortably recommend.

Task #3: Get Ready for the BIC(E)

Want to keep doing business as usual, whether that means collecting commissions on retirement accounts, using proprietary products, or other practices that may be problematic under the DOL rule? You’ll need to provide clients with a BICE, which stands for “Best Interest Contract Exemption.”