The Department of Labor
Proposed Regulation
Investment Fiduciary Advice: What You Need to Know Now!
Juli McNeely,
LUTCF, CLU, CFP
NAIFA President
Kevin Mayeux, CAE
NAIFA CEO
Judi Carsrud
Director
Government Relations
Kevin Mayeux, CAE
Welcome and thank you for joining us
Juli McNeely
NAIFA: The Voice of the Advisor
NAIFA is Influential
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May 4 - White House meeting with NEC & DOL
May 20 - DOL technical meeting
June 3 - DOL follow-up
June 21 - Formal comments
July 1 - FINRA meeting
August 11 - Testified before DOL
NAIFA is Influential
 September 10 - Testified at Financial Services Committee
Hearing
 September 16 - Compliance & Ethics Forum for Life
Insurers Annual Meeting presentation
 September 18 - House Financial Protection and Life
Insurance Caucus presentation
 September 25 - Senate Financial Protection and Life
Insurance Caucus presentation
How You Can Get Involved
• Educate yourself
• Educate your clients
• Contribute to IFAPAC / Join APIC
Judi Carsrud
What the rule says, what it
means, what you can do
DOL Proposed Regulation
• Defines Investment Advice Fiduciary
• Includes rules for receiving commissions, selling
proprietary products
• Draws line between education and advice
• Requires a contract between retirement saver,
advisor and broker-dealer, insurance company
• Extensive new disclosures
Investment Advice Fiduciary
• An advisor who provides advice for a fee is a fiduciary
under DOL rules
• Under current rule, exceptions if advice is one-time only or
if not under a mutual understanding that client will rely on
advice
• Under new rule, those exceptions not available
Advice For a Fee…
If you charge a fee for services, such as a flat fee, asset
management fee, hourly fee – and you do NOT receive any
other compensation – no commissions, no revenue sharing
fees, no health insurance payments, etc. – you are a
fiduciary and must work in the best interest of the client.
Advice for a Commission…
• If you receive a commission or a revenue sharing fee or other
compensation that is DIFFERENT based upon the
recommendation you make, you also are a fiduciary and must
work in the best interest of your client
• HOWEVER, because you receive “conflicted compensation,”
“differential compensation,” “prohibited compensation” – you
must satisfy further complicated rules.
Current Rules
• Under current rules, if you only provide advice on a one-time basis –
you are not a fiduciary.
• If your client and you do not have a mutual understanding that client
will rely on your advice, or if your advice is not the primary basis for
the client decision – you are not a fiduciary.
• If you are not a fiduciary, you can receive conflicted compensation.
• Some NAIFA members are likely fiduciaries under current rules…but
satisfy an available PTE.
No Conflicted Compensation
• The DOL rule requires that fiduciaries work in the clients’ best
interest – without any conflicts of interest – with care, prudence
and loyalty – this is true under current rules and is not new
news.
• The DOL provides “exemptions” to this rule if certain conditions
and requirements are satisfied…these are called “prohibited
transaction exemptions” (PTEs)
PTEs
• PTE 84-24 allows advisors to recommend products offered
by the plan provider and to receive a commission or other
conflicted compensation if certain disclosures are
provided….
• There are other PTEs that may also allow a fiduciary to
receive conflicted compensation.
The New Proposal
• Under proposed rule, it will not matter if the advice is one-time only,
or if there is a mutual understanding, or if the client is relying upon
your advice or recommendation….
• Under the proposed rule, the PTEs have been revised or revoked and
a new PTE is proposed.
• The new PTE, called the Best Interest Contract Exemption, or BIC
exemption, is the crux of the concern with the proposal as written.
The BIC Exemption
The BIC Exemption
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Requires a contract between the client, the advisor and the “financial
institution” (B-D, insurance company, bank, etc…) that:
– Acknowledges everyone is acting in the clients’ best interest
– Discloses conflicts and costs in dollar amounts over 1, 5 and 10 year periods
– Warranties that procedures to mitigate conflicts are in place – but the
examples provided basically exclude any third party compensation
(commission)
– Extensive data retention and disclosures
The BIC is Costly
• The contract then allows client to sue advisor for breach of contract
IN ADDITION to any and all ERISA remedies under current DOL rules
• Financial institutions must create public websites that include
impossible amounts of data regarding every possible investment
that could be offered in a retirement plan, including IRAs
• A costly, confusing and complicated set of requirements will drive
out advisors, B-Ds, insurance companies
PTEs for Annuities
• The rule changes the PTE dealing with
annuities and with proprietary products
• Requires BIC for some transactions
• PTE 84-24 for other transactions
Clients’ Best Interest?
Of course! How would NAIFA members stay in
business if they did not serve their clients?
How it Impacts Your Business
• When working with employers in setting up retirement plans
• When working with employees who have 401(k) type
accounts
• When advising on rolling plan assets to an IRA
• When recommending a fixed or indexed annuity
• When recommending a variable annuity
Advising ERs on Plan Set Up
• Encouraging employers to set up retirement plans is one of the many
ways NAIFA members are improving retirement readiness
• If you are paid via a percentage of total assets (ex: 50 bps or 75 bps)
– There is No conflicted compensation
– No need to satisfy one of the exemptions
– Still a fiduciary, required to work in client best interest
Advising ERs on Plan…
• Commissions on the investments into mutual funds,
including 12b-1 fees are NOT ALLOWED
– The BIC exemption is not available when advising ERs
– You must either charge a flat fee or % of assets - or you
cannot provide assistance
When Advising on Rollover to IRA
• If investing in mutual funds, or a variable annuity, will
need to meet requirements of the BIC exemption
• If investing in fixed annuity, will need to meet
requirements of PTE 84-24
When Advising Plan Participants
• Will need to meet the requirements of the BIC
exemption if you are paid commissions on the
investments recommended
• If paid a % of plan assets, you will not need a PTE
NAIFA National is the Leading Voice
• Hundreds of meetings with lawmakers
• Participate and attend hearings, briefings
• Letters from lawmakers to DOL
Pursuit of All Strategies
Time is running out!
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Hearings
Meetings with DOL to get rule right
Meetings with lawmakers
Appropriation Process
Legislative Alternatives
Timing
• DOL goal is to have final and effective by November 2016
• We expect the final rule to be published early 2016 and effective
10 months later…
• Congress may take action to require SEC first, defund the DOL
rulemaking, legislate a rule that works
What Can You Do?
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Have your non-NAIFA colleagues join NOW
Call your legislators
Have your clients write the DOL and lawmakers
Use social media tools on NAIFA website
Submit Op-eds in local newspapers
Colleague & Consumer Engagement
Visit
www.NAIFA.org
Questions?
Resources
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www.naifa.org
www.naifablog.com
www.capwiz.com/naifa
www.facebook.com/naifanational
www.twitter.com/naifa
governmentrelations@naifa.org