After many years of development and discussion, the United States Department of Labor (DOL) rule, originally set to be enforce in 2018, has now gone into effect, though with different rules and regulations compared to its predicator. The now enforce DOL Rule is mainly designed to establish best interest standards to protect investors. This exemption went into effect on February 16, 2021. So, what does this mean for your business?
The exemption targets the advice given by registered investment adviser (RIA) firms regarding their clients’ qualified retirement plan (“QRP”) accounts. In order to be compliant with this new regulation, most RIA firms that are registered with the Securities and Exchange Commission (SEC) or the states, need to take action immediately.
Only advisors that provide their clients with purely educational information regarding moving their assets from their existing QRP to another investment account, can avoid compliance with the new DOL regulations. Although Beacon Capital Management itself does not provide our clients with recommendations regarding model changes, portfolios, transferring an IRA to a qualified retirement plan (QRP) and similar advice, you as an advisor often do.
For example, an advisor recommending that a client rollover over their assets from a QRP to an IRA would now be subject to the DOL’s Impartial Conduct Standards as well as other policies, procedures, disclosures and documentation requirements under the new DOL Rule. These standards are comprised of three parts:
- a best interest standard
- a reasonable compensation standard
- a requirement to refrain from making statements about investment transactions and similar matters that are misleading
Going forward, it is imperative that RIA firms ensure that they meet these requirements every time an interaction involves an IRA rollover recommendation. Implementing these changes now makes full compliance seamless — even after the probationary period has elapsed.
A temporary enforcement policy is slated to remain applicable until December 20, 2021. Essentially, this provides RIA firms with the ability to possibly still provide fiduciary investment advice concerning IRA rollovers as long as they are doing so in good faith and diligently complying with the transaction’s impartial conduct standards.
While we anticipate additional guidance to continue to develop, here are a few best practices to keep in mind:
- ensure Impartial Conduct Standards compliance as detailed above
- backup all rollover recommendations with thorough documentation, including any conflicts of interest
- implement written procedures and policies that support compliance with the Impartial Conduct Standards
- maintain thorough reports and records for a minimum of six years
- review the compliance program on an annual basis to ensure that any changes are noted
Beacon Capital Management, and the financial advisors who partner with us, take pride in offering our clients fiduciary advice that is tailored to meet their goals, circumstances and comfort level. In many instances, you are likely already complying with these standards, but now it is more important than ever to document each step diligently. As always, if you need further guidance or have any additional questions, we encourage you to reach out to us at Beacon HQ.
Source: RIAinabox, DOL