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Preparing for the DOL fiduciary regulatory package

The Department of Labor (DOL) fiduciary regulatory package vastly changed the scope of activities that define an Employee Retirement Income Security Act (ERISA) fiduciary. So what does that mean for you and your practice?

Simply put, while the standards of ERISA fiduciary duties have not changed, the line determining what activities can give rise to a fiduciary status was moved, making it easier than ever to cross. So, knowing exactly where that line is, what your firm will allow and how you make your compensation is crucial to the success of your practice.

Current status of the regulation

On Aug. 9, 2017, the DOL submitted a proposed 18-month extension of the transition relief period of the fiduciary regulatory package to the Office of Management and Budget (OMB).

The transition relief period, originally slated to end Dec. 31, 2017, is now proposed to end July 1, 2019 for the following:

  • Best Interest Contract Exemption (BICE) (PTE 2016-01) (under transition relief, only the Impartial Conduct Standards must be met)
  • Prohibited Transaction Exemption 84-24 for certain transactions involving insurance agents and brokers, pension consultants, insurance companies, and investment company principal underwriters (PTE 84-24) (under transition relief, PTE 84-24 remains available but Impartial Conduct Standards must be met)
  • Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02) (under transition relief, only the Impartial Conduct Standards must be met)

We’ll need to see the details of the proposal, which won’t be available until the OMB finalizes their review, before we know for sure what a delay entails.

Based on this additional time, it’s possible the DOL may also make additional changes to the rule and Prohibited Transactions Exemption (PTE). It’s important to remember that the new definition of investment advice, the Best Interest Contract and other exemptions (subject to only the Impartial Conduct Standards) and the independent fiduciary, platform and education exceptions are still in effect.

So, now what?

This proposed delay doesn’t impact the parts of the fiduciary rule that were applicable June 9, 2017. It would simply extend the transition relief period for an additional 18 months. How we’ll engage with you to provide investment assistance for you and your clients will continue to depend on if you’ll be acting as an independent fiduciary or not.

Talk to your broker-dealer (BD) or registered investment advisor (RIA) to confirm your fiduciary status and how the fiduciary rule and this delay impacts you and your relationship with your clients.

Understanding the new landscape

Why should I care?

The DOL fiduciary regulatory package changed the definition of what activities constitute ERISA fiduciary status. The final regulatory package did not change what it means to be an ERISA fiduciary – which is commonly considered the highest standard of care known to American law.

The ERISA fiduciary standard

The standard for ERISA fiduciaries is not changing – it’s already the highest standard known to American law.
    • Strict ERISA sec. 404 duties of loyalty and prudence.
You may not receive anything of value (direct or indirect compensation)
    • Unless you’re meeting a PTE
If fiduciary duties are breached, the potential consequences include:
    • Personal liability
    • Disgorgement of profits plus self-reporting excise tax
    • Co-fiduciary liability

What defines you as a fiduciary under the new regulation?

Need more details? (PDF)

Applying the DOL fiduciary regulation to your practice

Getting paid when you’re an ERISA fiduciary

When you say you’re a fiduciary or you take any action defined as fiduciary, you’re prohibited from receiving anything of value for your services unless you meet a prohibited transaction exemption, most likely one of the three primary PTEs set out in the DOL regulatory package. And, you must ensure your compensation is reasonable for the services you are providing.

Learn more about PTEs — as well as exceptions that may apply — in this short video...

Need more details? (PDF)

Mitigating your risk as a fiduciary

As a fiduciary, you must adhere to the rule’s Impartial Conduct Standards which were applicable on June 9, 2017. The most obvious thing is for you to continue to act in your clients’ best interests. In other words, your recommendations:

  • Must be made solely in the interest of the retirement investor you are working with.
  • Cannot be influenced in any way by your own interests.
  • Must reflect considerations that a prudent expert in the field would employ.

The Impartial Conducts Standards also call for you to ensure that your compensation is reasonable for the services being provided, and that you make no materially misleading statements.

Other things to do

Document, document, document
You'll need to be able to show what products/services you selected for your clients and how you arrived at that recommendation in case you’re challenged by a client or the courts. Your best defense may be documentation from the time of the decision.
Be transparent
You'll need to clearly explain to clients how and what you get paid, and document that conversation. And be sure to keep your documentation updated.
A third-party 3(21) or 3(38) fiduciary service provider
By leveraging a third-party expert in investment selection and asset allocation, you have a credible source with documented due diligence processes and monitoring. This can help mitigate you and your clients’ investment fiduciary risk. Check with your financial institution on guidelines.
Utilize a level commission or fee-based arrangement
If your compensation is level, regardless of the investment recommendation you make, there is less chance that a client can claim your advice was conflicted based on the compensation you received.

Need more details? (PDF)

Your business — our support

While the regulation causes change for all of us, it also brings opportunity. We make available a wide range of products and services, top-tier investment options, plan compliance resources and consulting services to help you and your clients manage risk, in meeting retirement income objectives and, ultimately, build your value proposition for your clients. Here’s what you can expect from us:

Get more details for advisors (PDF) ... for plan sponsors (PDF).

Fiduciary support

Think of us as an extension of your team. We’re here to complement your business strategy. While we won’t provide fiduciary investment advice to retirement plan decision makers, we’ll:

  • Provide robust investment support to fiduciary advisors and plan sponsors who are “independent fiduciaries”
  • Offer investment education and information to plan fiduciaries
  • Offer investment education services for plan participants
  • Introduce fiduciary advice services for plan participants at benefit event (after the applicability date if the DOL fiduciary regulatory package and the availability of the BICE)
  • Continue to make available fiduciary advice services for plan sponsors of defined benefit and defined contribution plans

Participant education and advice when it’s needed most

The fiduciary regulatory package changes the rules when it comes to investment education and advice for participants. But rest assured, our people and technology will deliver a personalized education experience that helps participants make more informed decisions.

We’ve broken down educational interaction versus fiduciary advice. We’ll offer fiduciary advice about what to do with retirement assets in these situations:

  • Roll-ins: A participant has retirement assets held outside of the plan and they’re considering rolling those assets into the current plan.
  • Benefit event: A former participant has a benefit event (like retirement or termination) and needs to decide what to do with their retirement assets.

If a participant isn’t sure what to do when they join (roll-ins) or leave the plan (benefit event) and needs advice, we’ve got them covered too with our enhanced process. Here’s what it looks like:

  • Step 1: Get to know the participant — We’ll complete a rigorous, repeatable and documented process for gathering key information. We’ll ask questions to understand the participant’s goals, preferences, investment objectives, risk tolerance and current financial situation.
  • Step 2: Make a recommendation — Once we know the participant’s goals and plan, one of our financial counselors documents this into an industry leading tool. From there, they’ll produce a recommendation to share with the participant.
  • Step 3: Facilitate a decision for the participant — Together, we’ll talk about the recommendation. If the participant likes what they see, we’ll help with fulfillment of the recommendation.

We complete regular internal quality reviews for our financial counselors providing advice. We’re checking for things like call quality (providing helpful information they may need to make an informed decision) and we’ll review supervisory elements.

Ongoing support

Yes, the rules are changing, but you’re not in this alone. We have a dedicated team who has a successful history of responding and adapting to significant regulatory changes and are thoroughly evaluating the rule and its impact. We’re using this experience to help you and your retirement plan clients.

Contact our Regulation Assistance team at 800-258-9041, option 22# or email regassistance@principal.com.


The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax or accounting obligations and requirements.

Principal Financial Advisors, Inc. is a registered investment adviser and member company of the Principal Financial Group®. Registration does not imply any specific level of skill or training.

Insurance products and plan administrative services are provided by Principal Life Insurance Company. Principal Funds are distributed by Principal Funds Distributor, Inc. Securities are offered through Principal Securities, Inc., 800-547-7754, Member SIPC and/or independent broker/dealers. Principal Funds Distributor, Principal Securities and Principal Life are members of the Principal Financial Group®, Des Moines, IA 50392.

Principal, Principal and symbol design, and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.

© 2017 Principal Financial Services, Inc., 711 High Street, Des Moines, Iowa 50392


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