Standard Retirement Services, Inc. 1100 SW Sixth AvenuePortland OR 97204

www.standard.com

The Standard is the marketing name for StanCorp Financial Group, Inc., and its subsidiaries. StanCorp Equities, Inc., member FINRA, wholesales a group annuity contract issued by Standard Insurance Company and a mutual fund trust platform for retirement plans. Third-party administrative services are provided by Standard Retirement Services, Inc. Investment advisory services are provided by StanCorp Investment Advisers, Inc., a registered investment advisor. StanCorp Equities, Inc., Standard Insurance Company, Standard Retirement Services, Inc., and StanCorp Investment Advisers, Inc., are subsidiaries of StanCorp Financial Group, Inc., and all are Oregon corporations.

DOL’s Investment Advice Regulations: How Can I Get Paid? RP 18272 (6/16)

Department of Labor’s Investment Advice Regulations: How Can I Get Paid?The Department of Labor’s new investment advice regulations have broadened the definition of who is an investment advice fiduciary. In order to receive payment for services provided to a retirement investor, investment advice fiduciaries need an exemption from the ERISA-prohibited transaction rules. Payments in violation of these rules can result in liability and penalties.

Following implementation of the new investment advice regulations, two exemptions that will be widely used include the Level-fee Exemption and the Best Interest Contract Exemption, or BICE.

Level-fee Exemption

ERISA regulations have long included a prohibited transaction exemption (ERISA section 408(b)(14)) allowing fees to be charged for investment advice to qualified plans, as long as the compensation paid “does not vary on the basis of any investment option selected.” This exemption is known as the “level-fee prohibited transaction exemption.” The final Fiduciary Advice regulations do not change this exemption. In fact, commentary to the final regulations specifically states that the new regulations do not alter those arrangements.

However, even advisors who long have had level-fee compensation structures will see some changes and will need to carefully analyze their business models to ensure they can continue to use this exemption. For example:

• Even if the level-fee exemption applies, the regulations will generally require more documentation surrounding the rationale for advice provided to plans and the compensation charged for that advice.

• Plan sponsors will be expected to more thoroughly review an advisor’s compensation for reasonableness and will likely require additional information from advisors.

• Enhanced recordkeeping will likely be required to document practices for at least six years.

• Any additional compensation received, such as program payments, require special attention to ensure they do not create a conflict of interest or represent unreasonable compensation.

• Certain advice situations may still require a streamlined Best Interest Contract, such as advice regarding rolling funds from a qualified plan to a level-fee IRA.

• The DOL will need to provide further guidance on specific level-fee situations that could raise questions, such as moving a plan from an arrangement where indirect compensation is received through revenue-sharing to a level-fee arrangement.

Regulatory Insights

This information is for general information purposes only. Advisors should consult with their broker-dealer, compliance or legal counsel for guidance specific to their own situation.

Retirement Plans

Best Interest Contract Exemption Qualifications

The Best Interest Contract Exemption allows certain fiduciary advisors to receive variable compensation for their investment advice to retirement plans and IRAs. The following decision tree may help you decide whether the BICE applies to your practice.

If you answer yes to all of the questions below, you may be able to use the BICE to be paid for your services.

Are you an advisor, financial institution, affiliate or related entity?

An advisor is typically a fiduciary of the plan because of investment advice provided for a recommended transaction, who is licensed and also an employee or other affiliate of a financial institution.

A financial institution is generally an entity that employs and/or supervises the advisor, independent contractor, agent or registered representative and is a registered investment advisor, a bank, an insurance company or a broker dealer.

An affiliate is a person who is controlled by an advisor or financial institution, or an officer, director, partner or employee of the same. An affiliate can be a corporation or partnership.

A related entity means any entity other than an affiliate in which the advisor or financial institution has an interest that can affect the exercise of its best judgment as a fiduciary.

Do you receive compensation that varies based on the investment advice you give?

Variable compensation typically includes payments such as brokerage and insurance commissions, 12b-1 fees, revenue sharing payments, finders’ fees, underwriting compensation and recruitment compensation that varies with the investment recommended.

Do you provide investment advice?

Investment advice is defined in section 3(21)(A(ii) of ERISA and generally means a recommendation that, based on its context and presentation, would be seen as a suggestion to engage in or refrain from taking a particular action regarding securities or investment property, including selecting an advisor or manager. (For more detail, see The Standard’s Am I an Investment Advice Fiduciary?)

You may need another exemption to receive payment. (Only covered advisors, their affiliates or related entities in conjunction with their supervising financial institution can use the BICE.)

The BICE applies only to investment advice fiduciaries. Different exemptions apply to non-advice service providers.

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Yes.

Yes.

Yes.

No. If you receive level compensation, the ERISA 408(b)(14) level-fee exemption may apply (See Level-fee Exemption above for more information.)

No.

No.

No.

If you meet the above requirements, the BICE may enable you to receive compensation that would be otherwise prohibited. In addition to the qualification requirements above, the following BICE requirements must also be met. The qualifications for the BICE will vary depending on the type of retirement investor or transaction. The three versions of the BICE examined in the following chart include:

Full BICE: used to exempt variable compensation for investment advice to IRAs and Non-ERISA plans.

ERISA Disclosure BICE: used to exempt variable compensation for investment advice to ERISA plans.

Streamlined BICE: used to exempt compensation paid to level-fee investment advice fiduciaries under the following circumstances: when moving from an ERISA plan to an IRA, from one IRA to another, or when moving from a commission-based account to a level-fee arrangement.

Note that additional requirements may apply for proprietary transactions and third-party payments.

Are you providing investment advice to retirement investors?

Retirement investors are defined as a participant or beneficiary of a plan with authority to direct the investment of assets in his or her plan account, owner of an IRA acting on behalf of the IRA or a retail fiduciary.

The BICE covers investment advice to retirement investors. Other rules may apply to non-retirement accounts.

Requirements Full BICE

ERISA Disclosure

BICEStreamlined

BICE

Fiduciary acknowledgment requiredFinancial institution affirmatively states in writing that it and the advisor(s) act as fiduciaries under ERISA.

Written bi-lateral contract required

Impartial conduct standards• Advice “in the best interest of the retirement investor” at the time of the

recommendation, using the fiduciary standard of care• Charge no more than reasonable compensation• No misleading statement

Required warranties by financial institutions• Policies and procedures in place designed to prevent violations of impartial conduct

standards by advisors • Refrain from giving or using incentives for advisors to act contrary to the customer’s

best interest• Identify and document material conflicts of interest and appoint a BICE compliance

officer

Disclosure requirements• Best-interest standard must be disclosed in writing prior to the transaction• Describes services, fees and material conflicts of interest• Informs investors of the right to obtain additional written information regarding

policies and fees• Discloses whether it offers proprietary fees or receives third-party payments• Provides financial institution contact information• Describes whether the advisor and financial institution will monitor investments• Many required web disclosures

3

No.

Yes.

Requirements Full BICEERISA BICE

Streamlined BICE

Ineligible contract provisions• Can’t disclaim or limit liability for violation of contract terms• Can’t limit right to class action• Can’t require mediation in distant venues

Record retention and reporting• One-time notice must be e-filed with DOL that BICE is being used by the financial

institution• Retain records demonstrating compliance • Documentation of recommendation

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