Date post: | 06-Jan-2017 |
Category: |
Economy & Finance |
Upload: | amie-akridge |
View: | 434 times |
Download: | 1 times |
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 www.finracompliance.com
June 2016
1
The DOL Action Plan • Introduction • From the Investors Perspective • Commission vs Fee Transactions • Steps to Plan Ahead • Impacted Investment Accounts • Preparing for Compliance • BIC & Commissions vs Fee’s • Using BIC to remedy Compensation Conflicts • Action Steps • Summary • RND Resources Compliance Support
ERISA
ERISA- the Employment Retirement Income Security Act provided DOL with authority to regulate retirement and benefit plans established by employers and the financial services industry since 1974.
818.657.0288 Los Angeles | New York www.finracompliance.com
Table of Contents
Leading Securities Professionals in Compliance
2
DOL Fiduciary Rule: Adopted April 6, 2016 | Effective April 10, 2017 | Mandatory Compliance January 1, 2018
Introduction
In April 6, 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 IRA’s. 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 consumer’s interest must now come before an advisors financial interest. “
818.657.0288 Los Angeles | New York www.finracompliance.com
DOL Rule Action Plan – Eff: Apr2017
Leading Securities Professionals in Compliance
Effective April 10 2017
3
Mandatory Compliance Date: Jan 1, 2018
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 double to 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.
818.657.0288 Los Angeles | New York www.finracompliance.com
DOL Rule Action Plan – Eff: Apr2017
Leading Securities Professionals in Compliance
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 IRA’s. Financial advisors and investment planners stand to gain a lot by serving this demographic and have an obligation to help them make good decisions.
4
Time to Take Action – New Fiduciary Rule effective April 10, 2017
818.657.0288 Los Angeles | New York www.finracompliance.com
DOL Rule Action Plan – Eff: Apr2017
Leading Securities Professionals in Compliance
Commission based advisors will 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 to use 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 do’s and don’ts 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.
5
Risk in waiting
As many compliance officers know, there’s 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. Don’t leave yourself open to this threat. Plan ahead, prepare now.
818.657.0288 Los Angeles | New York www.finracompliance.com
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
DOL Rule Action Plan – Eff: Apr2017
Leading Securities Professionals in Compliance
6
Effective Date: Apr 10, 2017
818.657.0288 Los Angeles | New York www.finracompliance.com
DOL Rule Action Plan – Eff: Apr2017
Leading Securities Professionals in Compliance
Which types of Accounts are impacted by the Rule?
The DOL Rule affects qualified ERISA pension plans, IRA’s, 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)
7
818.657.0288 Los Angeles | New York www.finracompliance.com
DOL Rule Action Plan – Eff: Apr2017
Leading Securities Professionals in Compliance
Steps to Take (Effective Deadline: 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 in” approach 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 to weigh in on their concerns and adjust.
September - October Determine your best course of action for changes to existing clients & products. Begin establishing the changes.
8
818.657.0288 Los Angeles | New York www.finracompliance.com
DOL Rule Action Plan – Eff: Apr2017
Leading Securities Professionals in Compliance
Steps to Take (Effective Deadline: 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. Firms reaching 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
9
818.657.0288 Los Angeles | New York www.finracompliance.com
DOL Rule Action Plan – Eff: Apr2017
Leading Securities Professionals in Compliance
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 type fee-based advisory plans.
Using BIC – Best 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.
10
Using BIC. Sometimes or all-the-time.
818.657.0288 Los Angeles | New York www.finracompliance.com
DOL Rule Action Plan – Eff: Apr2017
Leading Securities Professionals in Compliance
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, etc…allowed
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.
11
818.657.0288 Los Angeles | New York www.finracompliance.com
DOL Rule Action Plan – Eff: Apr2017
Leading Securities Professionals in Compliance
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 which clients it makes sense to change to a fee-based model and which ones fall under BIC. It’s 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.
12
818.657.0288 Los Angeles | New York www.finracompliance.com
DOL Rule Action Plan – Eff: Apr2017
Leading Securities Professionals in Compliance
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 and adopt 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.
13
818.657.0288 Los Angeles | New York www.finracompliance.com
DOL Rule Action Plan – Eff: Apr2017
Leading Securities Professionals in Compliance
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, we’re 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 !
14
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 even the 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 www.finracompliance.com 15
Leading Securities Professionals in Compliance
DOL Rule Action Plan – Eff: Apr2017
BDs
Funds RIAs
RND Resources Inc
Headquarters
21860 Burbank Blvd, #150
Woodland Hills CA 91367
Contact: Amie Singer, Communications
Email: [email protected]
Phone: 818.657.0288
818.657.0288 Los Angeles | New York www.finracompliance.com
Contact us for more information
DOL Rule Action Plan – Effective: Apr2017 | Mandatory Compliance Jan 1, 2018
Leading Securities Professionals in Compliance
The End
16
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