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Preparing for the DOL fiduciary regulatory package

The Department of Labor (DOL) regulatory package vastly changes 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 fiduciary behavior have not changed, the fiduciary line has been moved, making it easier than ever to cross. And crossing the line carries heavier penalties. So, knowing exactly where that line is and how you make your compensation is crucial to the success of your practice.

Did you know?

52% of advisors expect to move to a heavier or full fee-based model as a result of the new DOL regulations.*

Current status of the regulation

On Tuesday, April 4, 2017, the DOL announced a 60-day delay to the applicability date of the fiduciary regulatory package (originally set for April 10, 2017). The final delay regulation is expected to be published in the Federal Register this Friday, April 7, and is effective beginning Monday, April 10.

 The delay puts the new applicability date at June 9, 2017. This date is not expected to change. The final delay regulation includes transitional relief from June 9 through December 31, 2017 allowing the DOL to further review the regulation as directed by President Trump.

 As of now, January 1, 2018 continues to be the final full compliance date.

What does this mean to me?

Current rules and regulations remain in effect during the 60-day delay period. So, all aspects of the DOL’s fiduciary regulatory package and accompanying exemptions, including the Best Interest Contract Exemption (BICE), are not currently available. Look to your broker-dealer (BD) or Registered Investment Advisor (RIA) for details on how this announcement impacts you and your clients during the delay and new transition period.

The DOL has indicated they will use the time between now and the end of the transition period to address the questions brought up in the Feb. 3 presidential memorandum inquiring whether the fiduciary rule may adversely affect the ability of Americans to gain access to retirement information and financial advice.

You should continue to prepare to be ready for the June 9, 2017, applicability date. Here are some steps you may want to take:

  • Look to your financial institution for direction on how these changes impact you. Specifically:
    • Have a conversation to confirm what fiduciary capacity you’ll be serving in; and
    • Initiate conversations with your clients to make sure they understand your role as well.
  • If your financial institution is requiring changes for your existing clients, such as with your compensation, review any changes in processes with your service providers. You’ll also want to review all client communications from your service providers so you can help guide your clients through the transition.
  • Ensure you understand the landscape, how to apply the regulation and how to mitigate your risk.
  • Leverage your service providers as appropriate to help complement your business model.

Understanding the new landscape

Why should I care?

The regulatory package changes the definition of what activities constitute ERISA fiduciary status. It does 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 is not changing – it’s already the highest standard known to law.
  • Strict ERISA 404 duties of loyalty.
You may not receive anything of value (direct or indirect compensation)
  • Unless you’re meeting a Prohibited Transactions Exemption (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 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 comply with an appropriate exemption, most notably one of the three primary PTEs set out in the regulatory package.

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

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.

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.
Team up with a third-party 3(21) or 3(38) fiduciary service provider
By leveraging a third-party expert in investment selection and asset allocation, such as Principal Financial Advisors, Inc. or Wilshire Associates Incorporated®, 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 will cause change for all of us, it also brings opportunity. We offer 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, meet 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 and the availability of the Best Interest Contract exemption)
  • Introduce fiduciary advice services for plan sponsors of defined benefit and defined contribution plans
    • Principal Financial Advisors, Inc. (PFA) provides 3(38) services for defined benefit plans
    • Wilshire Associates Incorporated® provides 3(21) and 3(38) services for defined contribution plans and 3(21) services for defined benefit plans

Participant engagement, independently double-checked

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 because:

  • All of our participant education services have been or will be thoroughly reviewed and adjusted to align with the new standards effective with the DOL fiduciary regulation. But that’s not all. We took it a step further to verify (through an independent, external auditor) that our call center and online educational experiences follow our procedures for providing education.1
  • When the DOL fiduciary regulatory package is applicable, we’ll have an advice service available to participants at benefit event and when they want to roll into the plan. And our advice services will be verified by an audit process to provide monitoring support for your clients.

Need more details? (PDF)

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 guide you and your retirement plan clients.

Contact our Regulation Assistance team at 800.258.9041, option 22# or email regassistance@principal.com.


1Independent verification procedures performed by an external auditor in accordance with the Attestation Standards of the American Institute of Certified Public Accountants.

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