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DOL’s First FAQ ‘Wave’ Focuses on BIC

The 24-page document covers a lot of ground in the form of 34 questions, and while much of it seems to confirm what had been understood (or assumed), the first wave of FAQs certainly provides some comfort – and in some cases clarifies key issues. 

Those who had hoped for some extension in the effective dates will be disappointed. The Labor Department said that, “in light of the importance of the Rule’s consumer protections and the significance of the continuing monetary harm to retirement investors without the Rule’s changes,” it felt that the year since publication of the final rule in the Federal Register was “appropriate and provides adequate time for plans and financial service providers to adjust to the change from non-fiduciary to fiduciary status” (the FAQs did offer an additional transition period for certain transactions that generally require a written authorization executed in advance by an independent fiduciary).
 

Among the key points:


  • The Labor Department is restricting the use of compensation grids – these must be gradual, not steep, and cannot be retroactive (Q9).

  • Recruitment “awards” are still permitted, if not tied to the movement of assets – but no back-end awards going forward (Q12).

  • Rollover documentation is required, regardless of whether the full BIC or level fee exemption is used. Addressed reliance on the level fee provisions of the BIC Exemption for investment advice to roll over from an existing plan to an IRA if the adviser does not have reliable information about the existing plan’s expenses and features (Q14).

  • So-called “hybrid” firms can utilize the streamlined level fee exemption for their advisory business (Q15).

  • The level fee exemption is available for rollover transactions, even if the adviser has subsequent discretionary authority over IRA assets (Q16).

  • The level fee exemption is available for a conversion of a commission-based account to fee-based account (Q17).

  • Any third-party payments will preclude use of the level fee exemption – meaning that a so-called “Frost offset” will not eligible for the level fee exemption (Q18).

  • The level-fee exemption is not available with respect to proprietary investments (Q19).

  • A rollover to a fixed annuity is covered by the 84-24 PTE, and does not require a BIC (Q32).