The following blog is the second of a 3-part series on this topic. Part One should be read in conjunction with this overview.
This “TO DO” list is for investment advisers that intend to start or continue providing fiduciary investment advice to retirement plan investors in reliance on the new Best Interest Contract Exemption (“BIC Exemption” or just “BICE”).
FIRST: Determine whether can properly rely on the BIC Exemption
- Is the “advice” being given within the scope of the BIC Exemption? The exemption generally is not available for advice by an employer, named fiduciary, or plan administrator to their own plan.
- Who is the recipient of the advice? The BIC Exemption may only be used for advice to IRA owners, plan participants and beneficiaries, and “retail” fiduciaries (generally plan or Individual Retirement Account (“IRA”) fiduciaries that hold, manage, or control less than $50 million in assets).
SECOND: Determine whether you are eligible to use the streamlined provisions as a “level fee” fiduciary
- Document in writing the reasons that you believe the particular level fee arrangement is in the client’s best interest.
THIRD: Determine whether particular investment programs should be modified
- Identify all payments from third parties. Are they reasonable in relation to total services they provide to the retirement plan investor?
- Analyze the structure of particular investment programs. Do they conflict with the adviser’s duty to provide advice that is in the client’s best interest?
- Draft a model client notice describing any such conflicts.
- Review compensation and incentives to individual advisers, such as quotas, employment agreements, awards, performance bonuses, differential compensation or similar incentives. Is such compensation intended, or reasonably likely, to encourage giving advice that runs counter to the best interest of the client?
FOURTH: Produce or amend written policies and procedures
- Develop procedures for determining what is in a client’s best interest.
- Develop procedures for documenting the basis for “recommendations” to retirement plan investors.
- Determine whether your current policies and procedures are sufficient to prevent conflicts from causing violations of the new “best interest standard.”
- Notify the Department of Labor of the intention to rely on the BIC Exemption.
FIFTH: Produce a written contract in compliance with the BIC Exemption
- Are existing agreements “grandfathered?”
- Amend standard investment advisory agreements to include required acknowledgements and disclosures. Have you removed all impermissible contractual provisions?
FINALLY: Post the required disclosures to your website
- Upload model contract disclosures
- Upload copies of your written policies and procedures relating to the “best interest standard” and handling of retirement plan investors’ accounts
- Post contact information for the person with responsibility for implementing the new Rule.
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This newsletter is published as a source of information only for clients and friends of The Securities Law Group. It is intended for general informational purposes and should not be construed as legal advice or an opinion on any specific facts or circumstances. The delivery of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship.
The Securities Law Group
James Grand
jgrand@tslg-law.com
415-644-9501
