Abridged from www.thinkhr.com
Under the rule, a person is a fiduciary if he or she receives compensation for providing advice with the understanding it is based on the particular needs of the person being advised or that it is directed to a specific plan sponsor, plan participant, or IRA owner. Such decisions can include what assets to purchase or sell and whether to rollover from an employment-based plan to an IRA. The fiduciary can be a broker, registered investment adviser, or other type of adviser, some of whom are subject to federal securities laws and some of whom are not. Additionally, under the rule’s updated definition of fiduciary investment advice, advisers to plan participants and sponsors are required under the Employee Retirement Income Security Act (ERISA) to provide investment advice in their client’s best interest. Likewise, under the rule and the associated prohibited transaction exemptions, advisers to IRA savers are required to put their client’s best interest first when recommending investments if they wish to continue receiving payments creating conflicts of interest. Those that provide investment advice to plans, plan sponsors, fiduciaries, plan participants, beneficiaries, and IRAs and IRA owners must either:
- Avoid payments that create conflicts of interest; or
- Comply with the protective terms of an exemption issued by the DOL.
Under the rule, firms are obligated to acknowledge their status and the status of their individual advisers as fiduciaries. Firms and advisers will also be required to:
Make prudent investment recommendations without regard to their own interests, or the interests of those other than the customer;
Charge only reasonable compensation; and
Make no misrepresentations to their customers regarding recommended investments.