More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- Conducting Due Diligence of Sub-Advisors and Third-Party Advisors Engaging in due-diligence of sub-advisors isnt just a recommended best practice it is part of the fiduciary obligation to a client. An RIA should be extremely reluctant to enter a relationship with a sub-advisor who claims the firms strategy is proprietary.
Advisors and broker-dealers should re-evaluate their IRA rollover business models and brush up on the differences and benefits of traditional IRAs and Roth IRAs now that the Department of Labor is mulling including IRAs in its reworked fiduciary rule.
Matrix Financial Solutions, a Broadridge company, is giving this advice to advisors and BDs in a newly released practice guide, IRAs & the ERISA Fiduciary Rules: Updates and Best Practices for a Changing Regulatory Environment, which outlines current DOL rules, what’s included in DOL’s fiduciary proposal, and steps advisors can take before the revamped rule to amend the definition of fiduciary under the Employee Retirement Income Security Act is released.
Among some of the questions Matrix’s guide tackles include:
• Will advising a participant to make a rollover from an employer plan result in ERISA fiduciary status?
• Will investment advice provided to IRA holders be considered “investment advice for a fee” under the same definition as employer plans such as 401(k) plans?
• Will the rules apply both to broker-dealers and registered investment advisors?
“The proposed regulations may result in more broker-dealers and RIAs being classified as an ERISA ﬁduciary when they provide services to IRAs,” warns Cindy Dash, Matrix’s COO. “It’s important that advisors and brokers understand this evolving issue and take the necessary steps to re-evaluate their business models and compensation structures in anticipation of any regulatory changes.”
While Matrix concedes that it doesn’t know what ultimately will be included in DOL’s revamped fiduciary rule, Phyllis Borzi, assistant secretary of labor for DOL’s Employee Benefits Security Administration, confirmed in early September that the reproposed rule would include IRAs — a move that advisors have vigorously oppposed.
“We will cover them,” Borzi said at a conference held by the Financial Services Institute. “What this multiyear process has shown us is that there’s an even greater need to protect those in IRAs…We are going to move forward on that.”
Borzi also said at the FSI event that DOL would not meet its October deadline of releasing the revamped proposal. Matrix says in its guide, however, that it expects a released rule proposal “late” this year.
Matrix notes that “most industry commenters believe there will be a broader definition of advisor activities that will result in fiduciary status and that the regulations will clarify how that broader fiduciary standard applies to IRAs – particularly IRA rollovers.”
Matrix says some possible changes in the way advisors work with IRAs as a result of DOL’s repropsal include:
• Advisors may be considered a fiduciary for investment support activities relating to qualified plan sponsors and participants that today are considered nonfiduciary activities.
• Soliciting IRA rollovers may result in fiduciary status.
• Investment (advice) support to IRAs may be subject to the ERISA fiduciary standard. Ultimately, this means an advisor’s business model and compensation structures may need to change if they work with IRAs – or they may be engaged in a prohibited transaction.
Check out The Women Leading the Fiduciary Charge on ThinkAdvisor.