There is a “workaround” to the proposed DOL Fiduciary Rule. This word is enough to give most people a less than happy feeling since it’s often used by IT techs to describe how they are going to fix a glitch in your computer system. Upon completion of their “workaround,” the entire system will often crash.
The “workaround” to taking on the role of a fiduciary is the “Best Interest Contract Exemption” or BICE. Among other things, this document states that you as an FA:
“…must adhere to basic standards of impartial conduct. In particular, under this standards-based approach, the Adviser and Financial Institution must give prudent advice that is in the customer’s best interest, avoid misleading statements, and receive no more than reasonable compensation.”
The DOL’s belief is this approach will ensure the adviser’s interest and that of the client are aligned while giving FAs the flexibility required to recommend the best product for the client. This is all to the good and isn’t exactly new since most of us have walked clients through the fees of the product we are selling along with any conflicts of interest we may have. It’s in the best interests of the client to do this and the vast majority of FAs act in the best interests of their clients whether they are legally compelled to or not.
The key provision in entire DOL Rule which will compel you as an FA to change the way you practice your profession is contained in the standards set for the “Best Interest Contract Exemption,” or BICE. Section 409 of ERISA will now apply to FAs handling IRA Rollover accounts and IRAs of any type. What is this practice-changing rule:
When fiduciaries violate ERISA’s fiduciary duties or the prohibited transaction rules, they may be held personally liable for the breach.
The relevant section in the new rule from which the above is drawn says:
“One of the chief ways in which ERISA protects employee benefit plans is by requiring that plan fiduciaries comply with fundamental obligations rooted in the law of trusts. In particular, plan fiduciaries must manage plan assets prudently and with undivided loyalty to the plans and their participants and beneficiaries. In addition, they must refrain from engaging in “prohibited transactions,” which ERISA does not permit because of the dangers posed by the fiduciaries’ conflicts of interest with respect to the transactions. When fiduciaries violate ERISA’s fiduciary duties or the prohibited transaction rules, they may be held personally liable for the breach.” 
To all of us in the industry, this is new and not something FAs have been subject to before. While we at Cannon Financial are not attorneys and are not giving legal advice, after reading the above paragraph taken from the DOL fiduciary rule, a reasonable person would come to the conclusions that this particular section gives clients the ability to sue an FA personally.
The takeaway: under the new rule, it isn’t just your firm on the hook for your advice, it’s you. Something to think about.
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