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The following blog is the third of a 3-part series on this topic.

Under the new Fiduciary Rule, when relying on the Best Interest Contract Exemption (“BIC Exemption” or “BICE”), a written contract is required. The contract may be a separate agreement or its required terms may be incorporated into the adviser’s standard investment management agreement. Either way, the contract must meet various explicit requirements contained in the new Rule.  

The Parties; Execution

The correct parties to the contract are the IRA owner and the registered investment adviser (the “Firm”) (not the individual adviser). The IRA owner must sign the contract manually (electronic signatures are acceptable). Until Jan. 1, 2018, negative assent is permitted for existing clients—in other words the contract requirements may be satisfied by sending the existing IRA customer a written notice including certain contractual undertakings and requirements. However, negative assent is not permitted for new clients. The contract must be executed prior to or at the same time the recommended transaction is executed

Conduct Standard; Fiduciary Acknowledgement

  • Impartial Conduct Standards. The contract must state that the Firm and its advisers will provide advice that is in the best interest of the retirement investor (discussed below) at the time of the recommendation; (2) they will not cause the adviser, affiliates or related entities to receive compensation for their services that would exceed reasonable compensation within the meaning of ERISA; and (3) statements about the recommended transaction, fees and compensation, material conflicts of interest, and any other matters related to the retirement investor’s investment decisions will not be misleading at the time they are made.
  • Fiduciary Acknowledgment. The contract must acknowledge in writing that the Firm and its advisers act as fiduciaries with respect to the investment advice subject to the contract.

Contract Terms

  • Warranties. The contract must warrant that (1) the Firm has adopted and will comply with written policies and procedures reasonably and prudently designed to ensure that its advisers adhere to the impartial conduct standards; (2) that in formulating the policies and procedures, the Firm identified and documented any material conflicts of interest and adopted measures to prevent the material conflicts of interest from causing violations of the impartial conduct standards, with a designated person responsible for addressing and monitoring these issues; and (3) that the Firm’s policies and procedures require that neither the Firm nor (to the best of its knowledge) its affiliates use or rely on quotas, appraisals, performance or personnel actions, bonuses, contests, special awards, differential compensation or other actions or incentives that are intended or would reasonably be expected to cause its advisers to make recommendations not in the best interest of the retirement investor.
  • Exculpatory Provisions. The contract cannot include any provisions disclaiming or limiting liability of the Firm or its advisers for violations of the contract’s terms or of the fiduciary rules under ERISA.
  • Waivers. The contract may include a waiver of the investor’s right to obtain punitive damages under contract law or rescission of recommended transactions based on a violation of the contract if such waivers are permitted under applicable state or federal law.
  • Pre-dispute Arbitration. The contract may require pre-dispute binding arbitration of disputes with the Firm or its advisers, provided that the chosen venue is not distant and does not unreasonably limit the ability of the investor to assert claims against the Firm or its advisers. Further, the investor’s right to bring a class action or other representative action in court must be preserved.



If a standalone BICE agreement is favored, care should be taken to ensure that the terms of the standalone agreement conform to the provisions of the Firm’s other, standard advisory agreements and disclosures. Special care should be taken when drafting exculpatory and pre-dispute resolution provisions in the BICE agreement. Also, advisers may, and should, employ conventional terms that are designed to provide protections to the Firm, where appropriate; e.g., provisions covering attorneys’ fees, waivers of jury trials, time limits on claims, punitive damages or costs, etc.


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