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Department of Labor Fiduciary Ruling: 5 Things You Need to Know

The Department of Labor (DOL) Fiduciary Ruling is good news for employers and their employees. The primary benefit of the new legislation is that investment professionals that offer investment recommendations for retirement plans will be held to the fiduciary standards as defined by ERISA.

While you may believe your existing investment advisor has served in this role, this is less common than most employers would think. Use the five questions listed below to confirm that you are taking advantage of the protections offered by the new legislation.

1. What is the purpose of this ruling and how does it affect me?

The purpose of the rule is to ensure that investment advisors will be held to the same fiduciary standards as employers. This means that your responsibility shifts to asking the right questions to ensure that the investment advisor acknowledges their responsibility in writing, that they have the appropriate structure, discipline and documentation standards in place to act as a fiduciary, and that they hold you harmless for their professional responsibilities.

2. What is the first step I should take to ensure my investment advisor is compliant?

You should require your investment advisor to complete a standard due diligence questionnaire each year. This documents that, as the plan sponsor, you are fulfilling your fiduciary duties. This is especially important now given the gravity of the recent regulatory changes.

3. What if my investment advisor is not in compliance with the fiduciary rules?

In the event your advisor will not or cannot comply with the new regulations it’s rather simple to change the service provider in this role. It will not require that you change recordkeepers.

4. How can I ensure a potential investment advisor is reputable?

You should require potential advisors to prove their experience by requesting references where they have served in a fiduciary capacity for at least the past decade.

5. What specifics must be in my investment advisor's service agreement?

The main points in their service agreement should clearly state that they are responsible for their recommendations and that they agree to hold you harmless for their actions. The agreement should also specifically state they will not solicit your employees for other services, especially for IRA Rollovers.

Employers should be cautious in executing new service agreements for investment advisory services. The new legislation allows employers to accept responsibility for excluding an investment professional from certain responsibilities covered by the legislation. This is referred to as a Best Interest Contract Exception, (“BICE”). The request for an employer to grant a BICE should be a point of concern.

Advisors have until April 10, 2017, to comply with the new regulations. Since the rules have changed and the clock is ticking, it’s now more important than ever to stay ahead of the game and ensure you’re in compliance. With fewer than 30% of all retirement plans being served in this capacity currently, there is a good chance that this will affect you.

This transition to meet the fiduciary standards will be expensive and complex for those not already in compliance. As a result, many firms will choose to exit the retirement plan market. However, the DOL Fiduciary Ruling is intended to protect employers and their employees. This is truly a change for the better.

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Richard Allison

Richard Allison brings more than 30 years of experience and knowledge to SWBC Investment Advisory Services. His team provides retirement plan solutions using a thorough process of investment research and providing another layer of consulting expertise to our clients.

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