Fiduciary Rule: What Advisors Want to Know

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There's an insatiable appetite among advisors for concrete information on Labor Department's proposed fiduciary rule. Many are asking: How will it impact me?

We knew this going into a recent webinar we hosted on the potential impacts of the rule. Yet while we anticipated that advisors around the country wanted more information, we received way more questions than anticipated and were surprised by the concerns many advisors still have. Below, we have provided the most frequently asked and pressing queries we received, along with answers we believe will shed light on this upcoming rule and its potential implications.


First, I think it makes sense to understand a few things about the scope of the proposal.

If you are managing qualified assets (such as an IRA) on behalf of your clients – and those assets include compensation being paid to you by the sponsor and not the client – you are affected by this proposed rule. This includes 12(b)-1 fees and annuity compensation.

If finalized as proposed, the rule will have a dramatic effect on an advisor's commissionable revenue.

According to Mark Smith, a partner at Sutherland Asbill & Brennan, the rule is 30-60 days or so from being delivered. We believe advisors should be out in front of the conversation with their clients before they are forced by the ruling to have the discussions. We strongly believe that you need to be on the offensive.


What about 12(b)-1 fees? Is there anything in the proposed rule that will allow grandfathering of the trails? I have accounts that have annuities inside the IRA and the surrender period is not over yet; what happens to those commissions? Certainly, the rule will allow for us to keep the existing trails, right?

There is no meaningful grandfathering provision contained in the proposed rules that the DOL released in April 2015. A number of commentators filed suggestions, asking for the inclusion of a more meaningful grandfathering provision in the final rule. However, a full and robust grandfathering provision which would fully carve out existing accounts from application of the new rules on a permanent basis is improbable at this point. There may be a longer implementation period for certain provisions of the rules that have heavy compliance burdens, so that advisors can continue business "as is," with sun-setting of those implementation periods at some point in the future. But, because it's unlikely that the rule will carve out current accounts on a permanent basis, there will be some pressure on advisors to look at the application of the new rule on their accounts right out of the starting block.

What about fixed annuity or index annuities (that don't need a securities license); will they be affected?

Many of the questions surrounded the licensing and application of insurance-based products in a qualified account. Remember, the DOL is proposing this rule, not the SEC. So, there is not a licensing (or lack thereof) carve out – everyone who manages qualified assets for clients will be considered an ERISA fiduciary under this rule.

The big concern here with continuing to advise an IRA account holding annuities is that there may be a surrender charge with respect to a variable annuity. Therefore, you either retain the variable annuity and attempt to comply with a prohibited transaction exemption (like the BIC Exemption) or compel the IRA holder to incur a surrender charge in order to transfer the assets into another product – neither of which is palatable. Unfortunately, there are not a lot of good answers in the proposed regulations. There is some hope that this situation will be addressed somehow in the final rule once it is released, but that's not certain by any means. So at a minimum, there is definitely a discussion that needs to be had with your clients who have annuities within their IRA accounts.

Do you see 12(b)-1 going away?

At this point, we don't expect to see the demise of the 12(b)-1 fees in retirement and IRA accounts in total. Certainly, there will be some advisors who will be looking closely at compliance with the BIC Exemption, so that they can continue to receive third-party payments, such as 12(b)-1 fees. But there will be pressure for affected advisors, who are now ERISA fiduciaries, to look at modifying their payment practices in order to avoid 12(b)-1 (and other related payments) so that compliance with the BIC Exemption would not be required. If you want to continue to receive 12(b)-1 fees, you may want to spend some time getting to know the terms of the BIC Exemption.


We will continue with the Q&A next week.  If you have more questions, please add them in the comment section below. Until then, start your action plan. Start it today. Here are some simple steps to get you going:

  • Assess your book of business for any qualified assets that contain commissionable products.
  • Seek out a partner who can help you create a compelling story, build your value proposition, create proposals and complete your paperwork.
  • Start building out your plan to convert those commission-based accounts to fees.

John Anderson is SEI Advisor Network's head of Practice Management Solutions.

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Fiduciary Rule Annuities Retirement planning Compliance Practice management