New Department of Labor (“DOL”) rules have been enacted to provide greater transparency for investors concerning retirement plan investment advice. On April 8, 2016, the DOL defined the term “fiduciary”, as it relates to the new conflict of interest rule concerning “retirement investment advice”, designed to protect investor retirement accounts. The new DOL changes represent significant increase in the governance over brokerage firms and financial advisors who provide investment advice to qualified pensions plan and IRA accounts.
According to the DOL Rules, the new “fiduciary standard” will impose two new requirements for financial advisors:
- Financial advisors must act in the best interests of investor retirement accounts; and
- Financial advisors providing financial advice for certain investment transactions must provide specific disclosures with an executed agreement to act in the client’s “best interests”.
Historically, financial advisors have been considered fiduciaries under ERISA Rules 3(21) and 3(38) when selecting money managers and disclosing costs and any conflicts of interest. IRA accounts were deemed to be covered under federal securities laws under the suitability standard rather than ERISA-mandated fiduciary duty. Under the new DOL rules, investors receive more complete information, including the type of compensation is paid to financial advisors. For fee-based investment advice, clients pay an hourly rate and/or an asset management fee to their financial advisor. For commission-based investment advice, clients receive an executed agreement that assures them that financial advisors are acting in their “best interest.”
According to the DOL, the rule begins with a recommendation to take a distribution from a 401(k) through recommendation made for IRA accounts. The “best interest” agreement requires financial advisors through a written contract, to clearly state any fees, conflicts of interests and provide information to increase transparency so that investors’ retirement account decisions can be made with accurate information. The “best interest” agreement should include specific terms, including:
- Acknowledgement that financial advisors owe a fiduciary duty to investors;
- Full disclosure of compensation and other fee information;
- A warranty that financial advisors will not make misleading statements related to a transaction, and
- Disclose actions taken to remove conflicts of interest.
True North Financial Advisors provides retirement investment advice through financial planning and investment management services. Financial planning and investment management services are available to investors through True North Financial Advisors. True North Financial Advisors complies with regulatory requirements related to disclosures to retirement plan investors concerning fees, costs and compensation.
