Michelle Capezza Q1 By: Michelle CapezzaEsq.
“My current advisor is a broker. With all the noise out there regarding the new fiduciary standard, is our relationship going to change? What questions should I be asking?”

As a plan sponsor, you are undoubtedly aware that the Department of Labor’s proposal for a new fiduciary standard under ERISA has been called a retirement industry game changer.  The proposed rules seek to treat those who provide investment advice or recommendations to an employee benefit plan, plan fiduciary, plan participant or beneficiary, IRA or IRA owner as fiduciaries under ERISA and the tax code in a wider array of advice relationships than currently exists.  The rules also seek to create new exemptions, and amendments to existing exemptions, from prohibited transaction rules to allow certain broker-dealers, insurance agents and others that act as investment advice fiduciaries to continue to receive a variety of common forms of compensation that would otherwise be prohibited as conflicts of interest.   The main impetus for these rules is the concern that many advisers have escaped fiduciary status under the existing fiduciary standard and that they have direct and substantial conflicts of interest which encourage investment recommendations that generate higher fees for the advisers at the expense of their customers and result in lower returns for customers.  There is still a lot of clarification needed regarding the DOL’s proposed regulation concerning the definition of a fiduciary under ERISA and the DOL recently held a public hearing to address comments received regarding the proposed rules issued in April 2015 (which replaced the proposal issued in 2010).  Thus, more guidance and interpretations are expected before the rules are finalized and in effect.  Nevertheless, many industry advisors and service providers will be examining their business models to determine what changes they may need to make to comply with the anticipated rules.

In the meantime, you should consider addressing the following with the broker that advises your employee benefit plan:

1. Discuss with your broker the types of services that they currently provide to your plan and how they anticipate such service 
arrangements might change under the new fiduciary rules.  
2. Ask your broker to confirm their fiduciary status and ask them to identify whether they find that they meet an exception or “carve-out” 
under the new rules, or whether they meet pre-existing exemptions for non-discretionary participant advice, so that you can further 
evaluate their position. 
3. If your plan has less than one hundred participants and is a non participant-directed plan, ask your broker if they intend to comply 
with the so-called Best Interest Contract prohibited transaction exemption and the service agreement or contract changes that they 
will make to comply with this exemption, as well as applicable fee disclosures, so that you can have them reviewed and evaluated.
4. Address with your broker how their fee schedules will be impacted by the new rules and what changes they anticipate with regard 
to their compensation, fees, commissions, etc. 
5. Review service agreements in the general course and assess updates that should be made to the agreements.

It is definitely important to have a dialogue on these issues and continue to monitor developments as they unfold.  Keep in mind that the rules may evolve further before finalized and your broker and service providers will need to assess the impact of the rules on the services they can provide and how they are delivered.  Further, my comments are general in nature and not tailored to any particular facts; you should seek qualified legal counsel to assist you with these and other benefit plan issues.  
Michelle Capezza

Michelle Capezza is a Member of Epstein Becker Green in the Employee Benefits & Executive Compensation and Health Care & Life Sciences practices. She practices law in the areas of ERISA, employee benefits, and executive compensation. For more than 20 years, Michelle has represented a range of clients...

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