The new fiduciary rule carved out a “safe space” for retirement plan communication and education activities that avoid fiduciary status, though IRAs are treated differently in one important respect.

Understanding when communications and education constitutes a recommendation is imperative to managing fiduciary risk. We apologize in advance if this discussion gets a bit legalistic!

What is Investment Advice?

Investment advice is a recommendation to a plan, plan fiduciary, plan participant and beneficiary, or IRA owner for a fee or other compensation, direct or indirect; this recommendation is as to the advisability of buying, holding, selling, or exchanging securities or other investment properties, including recommendations as to investments rolled over, transferred or distributed from a plan or IRA.

Also deemed as advice are recommendations regarding the management of securities, investment policies or strategies, portfolio composition, and the selection of a person to provide investment advice, services or investment account arrangements.

A communication is a recommendation if it could be reasonably viewed as a suggestion that the recipient engage in, or refrain from, taking a particular course of action. The more individually-customized the communication is to the recipient(s), the more likely the communication will be viewed as a recommendation.

Any communication that does not meet the definition of recommendation will be viewed as non-fiduciary.

Let’s examine each major form of communication.

Education

Education that is general in nature and not specific to the plan participant does not constitute advice, regardless of:

• who provides the educational information,
• the frequency with which the information is shared, or
• the form in which the information and materials are provided.

Specific investments may be included as examples when designated as examples only and are not specific recommendations, presenting hypothetical asset allocation models or in interactive investment education materials, as long as certain conditions are met (e.g., designated investments were selected or are monitored by an independent plan fiduciary).

With respect to IRAs, asset allocation models and interactive investment materials with references to specific investment alternatives are not viewed as “education.”

General Communications

General communications that a reasonable person would not view as an investment recommendation—including general circulation newsletters, general marketing materials and general market data (including data on market performance)—are not considered recommendations.

Requests for Proposals

The DOL recognized the role that Request for Proposals (RFPs) have in lowering costs and improving services. Consequently, RFPs do not fall under covered investment advice.

However, when sample investment line-ups contain specific examples of investment alternatives by name, you must disclose any conflicts of interest that may exist (e.g., revenue sharing, proprietary funds, etc.), and provide written notice to the plan sponsor that the RFP is not intended to be advice.

Effective Date

The revised fiduciary definition and its attendant requirements will become effective April 10, 2017.  However, there is a “phased” implementation for the Best Interest Contract Exemption and the Principal Transactions Exemption, running from April 10, 2017, to Jan. 1, 2018, under which fewer conditions apply.  For transactions on or after Jan. 1, 2018, full compliance with the exemption will be required.

See referenced disclosure(s) (1) at https://blog-dev.americanportfolios.com/disclosures/ .