CONFLICT OF INTEREST DOL RULE 2016

What does the proposed DOL rule mean?

Department of Labor Fiduciary RulingCurrently under review with OMB, the Office of Management and Budget, is a proposed rule from the DOL that redefines who is an ERISA fiduciary. A fiduciary under ERISA is one who does certain functions for a retirement plan that can impact the benefits to plan participants. ERISA fiduciaries are held to a very high standard of care in performing those functions. But today, many people who are paid for advice on investment strategies and stocks or bonds are not defined as ERISA fiduciaries. This means that the advisor could have a conflict of interest with the best interests of the client. The White House Council of Economic Advisers (CEA) in a study released in February 2015, quantified the costs of this conflict of interest at $17 billion annually or almost half a trillion dollars over 20 years.1   The new rule would establish that an advisor who is paid to provide advice (what stocks or mutual funds to buy or sell, would be required to put the client’s interest first.

The DOL’s reasoning: Advice is advice, and if it involves retirement assets covered by ERISA (either in a plan or an IRA), then it should be free of conflicts of interest.

Under the proposal, the way the DOL would ensure advice is conflict-free is to make all those who give investment advice to plans or participants “fiduciaries” and hold them to the high standards of ERISA.  For the first time, the DOL is actually looking at the propriety of certain business models used by financial advisers who claim to not be “fiduciaries” in providing their services to a plan or participants.

The proposed rule would make all of the following fiduciary functions:

  • Any action that would be viewed as a suggestion to buy, sell, hold or exchange securities or other property;
  • Recommending rolling over assets from a plan to an IRA
  • Providing certain appraisals of assets, for example an appraisal of a company’s value, in connection with a specific transaction involving plan or IRA assets
  • Recommending someone else, who for a fee, will do any of the things listed above

What this means to business owners offering a 401(k) plan:

If the proposed rule is adopted without change, more advisers would be considered ERISA fiduciaries. Plan sponsors; business owners offering their employees a 401(k) plan, have an opportunity to be proactive and start determining how their current relationships with all of the service providers working with the plan – and financial advisers specifically – may need to change.

How do you, a plan sponsor – or any other plan fiduciary – ensure that these financial advisers are independent and conflict-free? What about understanding if the fees you and your employees are being charged are reasonable? Or determining that plan participants are getting real value for the fees paid?

Fisher Investments, as a “3(38) investment manager” and an ERISA fiduciary with respect to the plans it services, accepts only compensation on a “fee for service” basis.

We charge a transparent fee for our services, based on total plan assets, regardless of the investment choices made. We operate our business with the philosophy that plan participants and IRA owners should be protected from conflicts of interest and particularly fee-based conflicts by plan fiduciaries.

Download our comprehensive white paper to learn more about:

  1. Why the DOL is proposing this rule
  2. Who the rule effects
  3. Determining who is and who is not a fiduciary in respect to your plan

[1] The Effects of Conflicted Investment Advice on Retirement Savings, https://www.whitehouse.gov/a>

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