The checklist covers various fiduciary responsibilities including those not associated with supposed delays or changes to the fiduciary rule, RiXtrema says.
Risk management tools and resources provider RiXtrema has released its DOL Fiduciary Rule Checklist to help advisers comply with the conflict of interest rule, which is currently undergoing full implementation.
“Every adviser who advises on retirement account assets as of June 9, 2017, is effectively an ERISA fiduciary who must adhere to Impartial Conduct Standard and charge no more than a reasonable fee,” explains RiXtrema President Daniel Satchkov. “It’s essential that advisers understand this and take necessary action to comply with the rule.”
In addition to the requirements that Employee Retirement Income Security Act (ERISA) fiduciary status implies, advisers also must adhere to the Best Interest Document which contains specific data points regarding both employer-sponsored retirement plans and individual retirement accounts (IRA). These data points will show whether a rollover or IRA-to-IRA transfer is in the best interest of the investor, according to RiXtrema.
The Checklist contains seven sections addressing various documentation requirements. Each section covers specific questions with references to legislation. These sections include consideration of fees and expenses associated with the existing plan; consideration of investments, fees and expenses associated with the proposed IRA; consideration of the levels of services and investments available in a rollover, and considerations of risk suitability.
Questions in Section One include:
- To satisfy this requirement, do your calculations include the fees of all of the types of investment vehicles in the current retirement plan portfolio, including collective investment trusts, separately managed accounts, group annuities?
- To satisfy this requirement, do you make and document a prudent effort to obtain the latest form 404(a)5 disclosure with the plan administration fee information?
- If despite prudent efforts you were not able to obtain a form 404(a)5 disclosure, do you use an exhaustive database of Form 5500 filings that gathers all fields both from Schedule I and Schedule H, where appropriate?
The firm notes that under the Department of Labor (DOL) fiduciary rule, any rollover is considered to be a “prohibited transaction.” Advisers who onboard IRA assets, since the promulgation of the rule on June 9, 2017, are required to document why the rollover is in the best interest of the investor.
Specifically, the DOL has says: “Although the documentation requirement is only specifically recited in the level fee provisions of the BIC Exemption, the documented factors and considerations are integral to a prudent analysis of whether a rollover is appropriate. Accordingly, any fiduciary seeking to meet the best interest standard as set out in the exemption would engage in a prudent analysis of these factors and considerations before recommending that an investor rolls over plan assets to an IRA or other investment, regardless of whether the fiduciary was a ‘level fee’ fiduciary or a fiduciary complying with the full BIC Exemption.”
After using the checklist, the adviser has the option of using RiXtrema’s IRAFiduciaryOptimizer to create a best interest documentation process.
“We can’t state forcefully enough that advisers must be fully engaged in complying with the rule,” adds Satchkov. “While there continues to be talk of delays in some areas of the rule, none concern the area addressed in the above DOL comment. Advisers who are not addressing this issue may incur liability due to ‘private right of action,’ which means that private parties can bring lawsuits as implied by the effective ERISA fiduciary status. Various delays by the DOL are distracting advisers, but it is important to understand that delays do not touch the core of the rule, which is fully in effect as of June 9, 2017. We are seeing that many advisers are starting to understand the landscape and the serious nature of their obligations. As a result, we are experiencing strong adoption of our IRAFiduciaryOptimizer by advisers wanting to ensure compliance.”