dol fiduciary rule action plan

7/25/2019 DOL Fiduciary Rule Action Plan

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Leading Securities Professionals in Compliance

RND Resources Inc

The DOL Action Plan

Implementing the DOL Rule

An action plan for bringing compliance teams, products, and

staff in line with the new fiduciary rules adopted April 2016.

818.657.0288 Los Angeles | New York ww.finracompliance.com

June 2016

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The DOL Action Plan

Introduction

From the investors perspective

Time to take action

Risk in waiting

Which accounts are affected

Steps to take

Choice of product models

How to use BIC Step by step action plan

Summary

We can help

About us

ERISA

ERISA- the Employment Retirement

Income Security Act provided DOLwith authority to regulate retirement

and benefit plans established by

employers and the financial services

industry since 1974.


Table of Contents


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Introduction

In April 2016, the Department of Labor adopted the fiduciary standard rule change in an effort to further

protect retirement investors from excessive fees and unsuitable products. The rule marks a sweeping change in

how advisors are allowed to interact with and present to retired and senior investors, or those investing in

retirement products. The rule change affects ERISA plans and various IRAs.

The rule update was long anticipated and affects nearly $3 trillion in client assets generating $19 billion in

revenue. Its implementation is expected to disrupt the entire industry along with compliance teams and

corporate executives shifting compensation and product focus to meet the new regulatory standard.

Labor Secretary Thomas Perez

We are putting a fundamental protection into the American

retirement landscape. A consumers interest must now come before an

advisors financial interest.


DOL Rule 2016 Action Plan June 2016


Deadline

April 2017

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From the Investor POV

In coming years baby boomers will inherit approximately $8.4 trillion from grandparents, parents and others.

The 65+ population segment is projected to doubleto 71.5 million by 2030.

2 out of 3 Baby Boomers are still in the active workforce right now.

An estimated 10,000 boomers will turn 65 every day for the next 13 years.




Baby Boomers are living longer and will have fewer people available to

support them during their retirement. This makes it very important for them

to be investing in their retirement and future care needs right now.

As baby boomers retire, many will roll over their 401(k) plans to IRAs.

Financial advisors and investment planners stand to gain a lot by serving this

demographic and have an obligation to help them make good decisions.

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Time to Take ActionNew Fiduciary Rule takes effect April 2017




Commission based advisorswill find the suitability

standard replaced with the fiduciary standard.

Some will want to switch to fee-based

transactions. Others will want to use the BIC

exemption. Expect changes the way you do

business, can increase costs, and nullify existing

essential relationships.

Fee-based advisors may need touse the Best Interest Contract

Exemption for roll-overs of

commission based accounts. Get

familiar with the BIC exemption

so you can implement it.

The rule change will impact disclosure

requirements and marketing

collateral; and may lead to changes in

marketing strategy. Become familiar

with dos and donts associated with

the rule change.

Full Compliance

Mandatory

January 1, 2018

The rule will have an industry wide impact on product

selections, features, and sales. Be prepared to

implement product changes and add new products

over the coming months and years. Staff training and

compliance procedure changes will be part of the

transition.

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Risk in waiting

As many compliance officers know, theres an inherent risk in delaying preparation for the inevitable. The cost

of catching up to current standards at the last minute leaves an organization open to hazardous mistakes. Often

times when things are left to the last minute, something else just as pressing comes up adding an unanticipated

layer of difficulty in getting the work done. Dont leave yourself open to this threat. Plan ahead, prepare now.


Plan Ahead

Getting familiar with the DOL conflict of interest

rule change and understanding how it will

affect your organization is key to establishing

control over the situation. Allow several weeks

to complete this step.

Be prepared for:

Clients asking questions

Sales staff asking questions

New investment products

Changes to policies and procedures

Competitors gaining an advantage

FINRA posing related exam questions



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Which types of Accounts are impacted by the Rule?

The DOL Rule affects qualified ERISA pension plans, IRAs, Rollovers, HSAs, MSAs

and more

ERISA Plans

Defined Contribution Plans

Defined Benefit Plans

403(b) plans (hospitals, schools, municipalities)

IRAs

Traditional

Roth

SEP

Simple

Savings Plans

Medical Savings

Health Savings

Education Savings

Rollovers from 401(k)

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Steps to Take (Deadline to implement: April 2017)

Compliance with the rule is required at April 2017, allowing adequate time for firms and service

providers to make adjustments and prepare. Additionally, the DOL has adopted a phased inapproach for implementing the BIC exemption. The phased in period is until January 2018 and is

intended as a window for financial institutions and advisers finish the transition.

June - August

Discuss the change with employees, vendors, and

service providers; giving everyone a chance toweigh in on their concerns and adjust.

September - October

Determine your best course of action for changes

to existing clients & products. Begin establishing

the changes.

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Steps to Take (Deadline to implement: April 2017)

Talk to affected clients early in the process. Chances are they will hear the news soon, if not

already, so be proactive and make sure they hear it from their investment firm early. Firmsreaching out to clients now will prepare their clients for the transition

and help it go smoother.

October - December

Develop training programs and new disclosures.

Alert clients of forthcoming changes and explain

why the change is happening.

January - April

Test your systems for compliance and refine any

areas as needed. Begin printing documentation.

Move qualified accounts to fee arrangements.

Last day:

April 9 2017

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Choices to make

Bottom line: Qualified plans will be subject to fiduciary rules, and suitability is no longer an

option. Firms serving retirement investors will have the choice of BIC transactions or RIA typefee-based advisory plans.

Using BICBest Interest Contract

Requires rigorous justification when choosing

commissionable products.

A few reasons use it may include; Legacy accounts on commissionable products,

Investors who prefer not to change their

investments,

Large institutions that support BIC compliance.

Fee-based Transactions

SEC registered RIAs already use

fiduciary standard business

models and ERISA standards.However, many will still use BIC,

especially for rollovers and IRA

transfers.

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Using BIC. Sometimes or all-the-time.




Contracted BIC

Used for advisors who are being

compensated by someone other than the

client. Requires a written, signed contract

between the client and the firm.

Acknowledgement advisor will still put clients

interests first.

Transactional BIC

Transactional BICs are used due to

the nature of the transaction,

such as 401(k) rollovers. These are

the easiest to invoke.

Non-Level Fee Transactions

The DOL stresses that commissions or other

transaction based compensation is explicitly

excluded from Level Fee Transaction status. All

these types of transactions must comply with

stringent BIC standards.

No bonuses,

quotas, contests,

awards,etcallowed

Level Fee Transaction

Level fee transactions mean the fee is based on a

fixed % of the value of AUM, or set so as to not

interfere with the recommendation. Streamlined

Transactional BIC documents are required

acknowledging fiduciary status.

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Steps firms can take now

Investigate Read up to understand the rule and how it will affect your business. Talk

to stakeholders and staff.

Analyze Review clients with qualified plans, commissionable products, variable

annuities, spreads, etc. Determine the rules impact on income, profitability, & business.

Divide Sort clients into groups based on the how they are affected. Determine whichclients it makes sense to change to a fee-based model and which ones fall under BIC. Its

possible some accounts should be handed off to a different custodian.

Begin Start preparing letters to clients and service providers. Educate clients regarding

changes. Develop changes to policies and procedures. Test systems for compliance.

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Summary

The new DOL fiduciary rule standard will require significant changes to existing business

practices and compliance programs in order to ensure documentation and disclosure

regulations are followed. Firms can expect regulatory authorities like FINRA and SEC to

be watchful of how firms integrate changes within the existing business model and will

analyze the use of BIC transactions, as well as transactions for retirement investors.

RND urges firms to be mindful of the purpose behind the DOL fiduciary rule change andadopt a company culture which represents the underlying theme, protect senior

retirement investors and their assets by acting in their best interest. Regardless of the

underlying nature of the transaction, acting in the best interest of the client will help

keep firms, compliance officers, and advisors out of trouble.

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RND Resources can help

RND Resources specializes in assisting BDs and RIAs with regulatory compliance. Whether its

updating books and records, navigating complex rule changes such as this one from DOL,

implementing a regulatory software solution, or any number of situations, were able to provide

consultation and support on a fixed-fee, hourly rate, or monthly retainer fee.

On-going Compliance Support

RIA and BD Registration services

FinOP & CCO service FOCUS Filing, SIPC, annual reports & schedules

Form ADV filing, amendments, and schedules

Annual compliance reviews

Marketing review

Consultation

New Firm Formation, NMA, CMA

CyberSecurity testing and policies

Litigation and Expert Witness Fintech Firm Compliance

Fintech Program Development

Audit & Tax Services too

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About RND Resources Inc

RND is a full-service regulatory compliance consulting firm for the Financial Services industry. Our team is

comprised of seasoned compliance and registration experts who are available to assist businesses with eventhe most complex regulatory requirements. We use proprietary trading, tools, and back office software to

develop fully integrated solutions customized to meet your strategic goals and regulatory needs.

Full Vertical Integration

Full Service Brokerage Support

On-Site Audit Services Expert Regulatory Consulting

Customized Compliance Programs

818.657.0288 Los Angeles | New York ww.finracompliance.com 15



BDs

FundsRIAs


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RND Resources Inc

Headquarters

21860 Burbank Blvd, #150

Woodland Hills CA 91367

Contact: Amie Singer, Communications

Email: [email protected]

Phone: 818.657.0288


Contact us for more information



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Disclaimer: This presentation is intended for informational purposes only and should not be considered a replacement for research,

investment advice, legal opinion, consulting, or otherwise. For additional information contact RND Resources Inc | Los Angeles CA

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