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Rating:The Feds Want 401k and IRA Advisors to Make a Promise Not Rated 0.0 Email Routing List Email & Route  Print Print
Tuesday, April 14, 2015

The Feds Want 401k and IRA Advisors to Make a Promise

Reported by Neil Anderson, Managing Editor

Fundsters with an interest in the 401(k) space, and fundsters who work with FAs who do 401(k) rollovers, have a new regulation to wrap their heads around.

This afternoon on a conference call with reporters, U.S. Secretary of Labor Tom Perez and National Economic Council director Jeff Zients unveiled the Department of Labor's (DoL's) long-awaited redefinition of fiduciary under ERISA, the federal law that governs qualified retirement plans like 401(k)s. Zients called the proposal a "central part of the President's middle-class economics agenda."

The heart of the DoL's new proposal seems to be the new "best-interest contract exemption," a kind of shield ("prohibited transaction exemption" in ERISA-speak) that allows advisors to use non-level compensation models while giving advice on retirement plans or rollovers, as long as the advisor gives the client a contract saying that the advisor will only act in the client's best interest.

"Advisors can have considerable flexibility in how they get paid as long as they put the client's best interests first," Perez said on the call. "The proposal does not end commissions ... It doesn't apply to brokers who just take direct orders and don't provide advice."

Perez added that those (namely employees of big financial services providers) who give general investment education would also not be required to be fiduciaries and use best-interest contracts.

There will now be a 75-day public comment period, followed by a public hearing, a published transcript of that hearing, and then another comment period, before the DoL publishes the final reg. So start your commenting engines now. 

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