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DOL Attempts Clarity on Fiduciary Communications

By Murray Coleman January 24, 2017

In a follow-up to October’s first set of answers to frequently asked questions about the implementation of its new fiduciary rule, the Department of Labor has revealed a second FAQ where lines are drawn between fiduciary and non-fiduciary communications.

In its latest attempt to provide advisors with greater understanding of how to comply with the rule, the DOL tries to bring under the microscope everything from industry conferences and newsletters to interviews and media appearances, according to Matt Matrisian, senior vice president of strategic initiatives at AssetMark.

“It’s effectively warning advisors that they’ve got to watch more closely what they say in public, whether it’s with clients or others in the industry,” says the Concord, Calif.-based executive, whose firm manages $32.3 billion.

The DOL rule seeks to create fiduciary standards for advisors in retirement planning. The new regulation is scheduled to start being implemented on April 10. But as reported by FA-IQ late last year, there’s growing expectation in the industry that President Donald Trump will decide to delay – or even scrap – the rule.

Still, word hasn’t come down directly yet from Trump. His pick to run the DOL, Andy Puzder, isn’t expected to begin confirmation hearings on Capitol Hill until Feb. 2.

Regardless of what happens in Washington, Matrisian warns that “the bar for fiduciary standards for American investors is only going to keep going up.”

As a result, he recommends advisors “keep operating as if the rule is going to be implemented.”

Along those lines, Matrisian suggests FAs need to make sure they’re aware of when a higher level of fiduciary scrutiny might be applied to communications with different outside parties.

It’s probably true that advisors already face plenty of rules guiding their marketing efforts, both by regulators as well as broker-dealers, he observes. “But these new FAQs are trying to bring a deeper sense of clarity to how advisors communicate – and that’s a good thing,” Matrisian says.

Matt Matrisian

The relatively short four-question communications section is followed by several other examples relating to discussions involving industry representatives, notes Bonnie Treichel, an attorney and chief compliance officer for independent RIA Multnomah Group in Portland, Ore., which manages about $15 billion.

Throughout the 17-page document, she sees such communications-specific questions with corresponding answers as the DOL trying to help FAs “not cross the line between making what could be construed as an investment recommendation and general educational advice.”

For example, one set of questions and answers considers whether free dinner seminars to market IRAs or other retirement services to investors might be acceptable under the DOL rule.

From the response given by regulators, Treichel says, “that’s going to be a prime type of marketing effort which the DOL will consider to be akin to giving advice – not general education.”

The upshot: Advisors conducting such seminars or workshops for clients and prospects need to do so acting as a fiduciary, she says, “not as a broker who must adhere to a broader suitability standard.”

Another issue brought up by the second-round of FAQs is communication between fiduciaries for defined contribution retirement plans and third-party administrators, or TPAs. Specifically, the DOL’s implementation experts look at whether recommendations by a TPA to hire a non-fiduciary record-keeper are in keeping with the new higher standards.

“In other words, these record-keepers are acting as administrators but aren’t making any specific investment recommendations – they’re providing strictly back-office support,” Treichel says.

The DOL clarifies that a TPA making recommendations on hiring such a record-keeper could be considered as a non-fiduciary act.

“So it means that the TPA – who isn’t already considered a fiduciary – will have less liability,” Treichel says.

That is “pretty much in conformance with how they’ve been operating up to this point,” she adds.

Another FAQ that's probably not terribly surprising stipulates that remarks made during industry-only conferences are likely to be treated as “general communications,” points out Chris Stanley, general counsel at San Jose, Calif.-based investment outsourcer Loring Ward, which manages about $14 billion.

In such instances, those comments are likely not going to be viewed as subject to fiduciary scrutiny, he adds.

“The FAQs did an admirable job of trying to clear up some gray areas of communications,” Stanley says. “But they didn’t provide any bright line answers for possible scenarios that aren’t extremely fact-specific.”

While the real-life examples covered are helpful, Stanley still expects at least one other set of FAQs to be issued by the DOL.

“As real-life scenarios play out after April 10, advisors are probably going to be able to get more official guidance on how they need to view communications with their clients and the public,” he says. “The DOL has emphasized that it’s trying to be helpful and not punitive in the early stages of implementation.”