July 18, 2018

July 18, 2018

Subscribe to Latest Legal News and Analysis

July 17, 2018

Subscribe to Latest Legal News and Analysis

July 16, 2018

Subscribe to Latest Legal News and Analysis

Potential Prohibited Transactions: Interesting Angles on the DOL’s Fiduciary Rule #12

This is my twelfth article about interesting observations “hidden” in the fiduciary regulation and the exemptions.

The DOL has long taken the position that the recommendation of a discretionary investment manager is a fiduciary act. (At least one court has adopted that position – in a case involving investments with Madoff.)

While I am not aware of any guidance or litigation about potential prohibited transactions because of payments to persons who recommend investment managers (e.g., solicitor’s fees), from a legal perspective, if the person making the referral is a fiduciary and that person receives a fee, it may be a prohibited transaction under ERISA and the Internal Revenue Code.

To further complicate matters, when the new fiduciary rule becomes applicable on April 10, 2017, the definition of “fiduciary” will cover someone who makes referrals to both discretionary investment managers and non-discretionary investment advisers for plans, participants and IRAs. More specifically, the fiduciary definition includes:

A recommendation as to the management of securities or other investment property, including, among other things, recommendations on investment policies or strategies, portfolio composition, selection of other persons to provide investment advice or investment management services . . .” [Emphasis added.]

In other words, a person who recommends a fiduciary adviser (which could include financial advisers, insurance agents and investment advisers under the new definition) will be a fiduciary for that purpose, if a fee is paid for the referral; and the payment of that fee could be (or, perhaps, probably will be) a prohibited transaction.

This is a significant change. Advisers who pay fees for referrals should consider its impact.

Part 1- Interesting Angles on DOL’s Fiduciary Rule #1

Part 2 - Best Interest Standard of Care: Interesting Angles on the DOL’s Fiduciary Rule #2 

Part 3 - Hidden Preamble Observations: Interesting Angles on the DOL’s Fiduciary Rule #3

Part 4 - TV Stock Tips and Fiduciary Advice: Interesting Angles #4

Part 5 - Level Fee Fiduciary Exemption: Interesting Angles on DOL’s Fiduciary Rule #5

Part 6 - Fiduciary Regulation And The Exemptions: Interesting Angles on the DOL’s Fiduciary Rule #6

Part 7 - Fiduciary Regulations And The Exemptions : Interesting Angles on the DOL’s Fiduciary Rule #7

Part 8 - Designated Investment Alternatives: Interesting Angles on the DOL’s Fiduciary Rule #8

Part 9 - Best Interest Standard and the Prudent Man Rule: Interesting Angles on the DOL’s Fiduciary Rule #9

Part 10 - FINRA Regulatory Notice: Interesting Angles on the DOL’s Fiduciary Rule #10

Part 11-ERISA and the Internal Revenue Code: Interesting Angles on the DOL’s Fiduciary Rule #11

Part 13-Investment Policies: Interesting Angles on the DOL’s Fiduciary Rule #13

Part 14- Investment Suggestions: Interesting Angles on the DOL’s Fiduciary Rule #14

Part 15- Best Interest Contract Exemption: Interesting Angles on the DOL’s Fiduciary Rule #15

Part 16 - Adviser Recommendations: Interesting Angles on DOL’s Fiduciary Rule #16

Part 17 - Level Fee Fiduciary: Interesting Angles on DOL’s Fiduciary Rule #17

Part 18- Best Interest Contract Exemption and IRA Advisor Compensation: Interesting Angles on the DOL’s Fiduciary Rule #18

Part 19- Interesting Angles on the DOL’s Fiduciary Rule #19: Advisors' Use of "Hire Me" Practices.

Part 20- Three Parts of "Best Interest Standard of Care": Interesting Angles on the DOL’s Fiduciary Rule #20

Part 21- Retirement Plan Documentation and Prudent Recommendation: Interesting Angles on the DOL’s Fiduciary Rule #21

Part 22-Banks and Prohibited Transactions: Interesting Angles on the DOL’s Fiduciary Rule #22

Part 23-Prohibited Transactions: IRA and RIA Qualified Money: Interesting Angles on the DOL’s Fiduciary Rule #23

Part 24 - Differential Compensation Based on Neutral Factors

Part 25-Reasonable Compensation Versus Neutral Factors: Interesting Angles on the DOL’s Fiduciary Rule #25

Part 26- Interesting Angles on the DOL’s Fiduciary Rule #26- Reasonable Compensation for IRAs: When and How Long?

Part 27 - Definition of Compensation

Part 28 - What About Rollovers that Aren’t Recommended?: Interesting Angles on the DOL’s Fiduciary Rule #28

Part 29- Interesting Angles on the DOL’s Fiduciary Rule #29- Capturing Rollovers: What Information is Needed?

Part 30- Three Kinds of Level Fee Fiduciaries . . . and What’s A “Level Fee?”: Interesting Angles on the DOL’s Fiduciary Rule #30

Part 31 - Interesting Angles on the DOL’s Fiduciary Rule #31: “Un-levelizing” Level Fee Fiduciaries

Part 32 - What “Level Fee Fiduciary” Means for Rollover Advice: Interesting Angles on the DOL’s Fiduciary Rule #32

Part 33- Discretionary Management, Rollovers and BICE: Interesting Angles on the DOL’s Fiduciary Rule #33

Part 34- Seminar Can Be Fiduciary Act: Interesting Angles on DOL’s Fiduciary Rule #34

Part 35- Presidential Memorandum on Fiduciary Rule: Interesting Angles on the DOL’s Fiduciary Rule #35

Part 36 -Retirement Advice and the SEC: Interesting Angles on the DOL’s Fiduciary Rule #36

Part 37 - SEC Retirement-Targeted Examinations: Interesting Angles on the DOL’s Fiduciary Rule #37

Part 38- SEC Examinations of RIAs and Broker-Dealers under the ReTIRE Initiative: Interesting Angles on the DOL’s Fiduciary Rule #38

Part 39- FINRA Regulatory Notice 13-45: Guidance on Distributions and Rollovers: Interesting Angles on the DOL’s Fiduciary Rule #39

Part 40 - New Rule, Old Rule - What Should Advisers Do Now?: Interesting Angles on the DOL’s Fiduciary Rule #40

Part 41 - While We Wait: The Current Fiduciary Rule and Annuities: Interesting Angles on DOL’s Fiduciary Rule #41

Part 42 - Rollovers under DOL’s Final Rule: Interesting Angles on DOL’s Fiduciary Rule #42

Part 43 - BICE Transition: More Than the Eye Can See - Interesting Angles on DOL’s Fiduciary Rule #43

Part 44 - Basic Structure of Fiduciary Package (June 9): Interesting Angles on DOL’s Fiduciary Rule #44

Part 45 - DOL Fiduciary “Package”: Basics on the Prohibited Transaction Exemptions: Interesting Angles on the DOL’s Fiduciary Rule #45

Part 46 - How Does an Adviser Know How to Satisfy the Best Interest Standard?: Interesting Angles on the DOL’s Fiduciary Rule #46

Part 47- “Real” Requirements of Fiduciary Rule: Interesting Angles on DOL’s Fiduciary Rule #47

Part 48- The Last Word: The Fiduciary Rule Applies on June 9- Interesting Angles on the DOL’s Fiduciary Rule #48

Part 49- The Requirement to Disclose Fiduciary Status: Interesting Angles on the DOL’s Fiduciary Rule #49

Part 50- Fourth Impartial Conduct Standard: Interesting Angles on DOL’s Fiduciary Rule #50

Part 51- Interesting Angles on the DOL’s Fiduciary Rule #51: Recommendations to Transfer IRAs

Part 52 - Interesting Angles on the DOL’s Fiduciary Rule #52: The Fiduciary Rule and Exemptions: How Long Will Our Transition Be?

Part 53 - Fiduciary Rule and Discretionary Investment Management: Interesting Angles on DOL’s Fiduciary Rule #53

Part 54 - Interesting Angles on the DOL’s Fiduciary Rule #54: The DOL’s RFI and Possible changes to BICE

Part 55- DOL’s RFI and Recommendation of Annuities- Interesting Angles on DOL’s Fiduciary Rule #55

Part 56-Recommendations of Contributions as Fiduciary Advice: Interesting Angles on the DOL’s Fiduciary Rule #56

Part 57- Relief from 408(b)(2) Requirement on Change Notice: Interesting Angles on the DOL’s Fiduciary Rule #57

Part 58- Recommendations to Contribute to a Plan or IRA- Interesting Angles on the DOL’s Fiduciary Rule #58

Part 59- What Plans and Arrangements Are Covered by the Fiduciary Rule: Interesting Angles on the DOL’s Fiduciary Rule #59

Part 60- What the Tibble Decision Means to Advisers: Interesting Angles on the DOL’s Fiduciary Rule #60

Part 61- Interesting Angles on the DOL’s Fiduciary Rule #61: The Fiduciary Rule, Distributions and Rollovers

Part 62 - Is It Possible To Be An Advisor Without Being A Fiduciary? - Interesting Angles on the DOL’s Fiduciary Rule #62

Part 63-Policies and Procedures: The Fourth BICE Requirement - Interesting Angles on the DOL’s Fiduciary Rule #63

Part 64 -What Does the Best Interest Standard of Care Require?-Interesting Angles on the DOL’s Fiduciary Rule #64

Part 65- Unexpected Consequences of Fiduciary Rule - Interesting Angles on the DOL’s Fiduciary Rule #65

Part 66- Concerns About 408(b)(2) Disclosures: Interesting Angles on the DOL’s Fiduciary Rule #66

Part 67- From the DOL to the SEC - Interesting Angles on the DOL’s Fiduciary Rule #67

Part 68-Recommendations of Distributions - Interesting Angles on the DOL’s Fiduciary Rule #68

Part 69- Compensation Risks for Broker-Dealers and RIAs: Interesting Angles on the DOL’s Fiduciary Rule #69

Part 70-Interesting Angles on the DOL’s Fiduciary Rule #70: The Fiduciary Rule and Recordkeeper Services

Part 71- Interesting Angles on the DOL’s Fiduciary Rule #71: Recordkeepers and Financial Wellness Programs

Part 72- Interesting Angles on the DOL’s Fiduciary Rule #72 - The "Wholesaler" Exception

Part 73- Interesting Angles on the DOL’s Fiduciary Rule #73: Recordkeeper Investment Support for Plan Sponsors

Part 74- Interesting Angles on the DOL’s Fiduciary Rule #74: One More Fiduciary Issue for Recordkeepers

Part 75-Interesting Angles on the DOL’s Fiduciary Rule #75-The Fiduciary Rule: Mistaken Beliefs

Part 76-Interesting Angles on the DOL’s Fiduciary Rule #76-Discretionary Management of IRAs: Prohibited Transaction Issues for RIAs

Part 77-Interesting Angles on the DOL’s Fiduciary Rule #77: The Fiduciary Rule: Mistaken Beliefs (#2)

Part 78-Interesting Angles on the DOL’s Fiduciary Rule #78: The Fiduciary Rule: Mistaken Beliefs (#3)

Part 79-Interesting Angles on the DOL’s Fiduciary Rule #79-The Fiduciary Rule: Mistaken Beliefs (#4)

©2018 Drinker Biddle & Reath LLP. All Rights Reserved

TRENDING LEGAL ANALYSIS


About this Author

Fred Reisch, Drinker Biddle Law Firm, Los Angeles, Labor and Employment Law Attorney
Partner

Fred Reish represents clients in fiduciary issues, prohibited transactions, tax-qualification and Department of Labor, Securities and Exchange Commission and FINRA examinations of retirement plans and IRA issues.

Fred works with both private and public sector entities and their plans and fiduciaries and represents plans, employers and fiduciaries before federal agencies such as the DOL and IRS. He consults with banks, trust companies, insurance companies and mutual fund management companies on 401(k) recordkeeping services, investment products and...

(310) 203-4047