DOL’s Release of Proposed Regulations Re Investment Advice
On August 22, 2008, the Department of Labor (DoL) issued two proposals to regulate advisers servicing IRA, 401(k) and other plan participant clients (Fiduciary Clients). The proposals were issued in response to directives contained within the Pension Protection Act of 2006 (PPA) and are expected to be finalized by the end of the year. While the proposals are scheduled to become effective during the first quarter of 2009, the comment period ends on October 4, 2008.
As proposed, the regulations require all advisers with Fiduciary Clients to acknowledge their fiduciary status and comply with the following:
1. Each affected adviser must have a written agreement with the Fiduciary Client, described as an eligible investment advice arrangement (EIAA). The EIAA must make contain specific representations, including a fiduciary statement, details of fees and compensation, affiliations and services rendered.
2. Fiduciary Clients must receive disclosures each year that update information provided in the EIAA.
3. Advisers providing “off model” advice to a Fiduciary Client must document the basis of any such recommendations and include the reasons for any deviation from advice generated by the computer model or asset allocation portfolio.
4. Fiduciary adviser firms must adopt and follow written policies and procedures designed to assure compliance with the conditions of the exemption.
5. Each adviser must undergo an annual “408g Audit” that evaluates the adviser’s compliance with the EIAA as well as its own policies and procedures.
These new regulations will require significant changes in a number of areas. We are in the process of assisting our clients with developing and implementing solutions (e.g., updating existing agreements, drafting disclosure documents, amending compliance and supervisory procedures, obtaining suitable fiduciary insurance, etc.). E&W is also working with DALBAR, Inc. to further assist our clients in conducting 408g Audits and educating advisers on the new requirements.
Once the regulations are finalized, we will issue a comprehensive report and sponsor a webcast to discuss the impact of the regulations on broker-dealers, RIAs and their representatives. In the meantime, please feel free to contact Jason Roberts with any questions or for assistance in preparing a comment for submission to the DoL.
As proposed, the regulations require all advisers with Fiduciary Clients to acknowledge their fiduciary status and comply with the following:
1. Each affected adviser must have a written agreement with the Fiduciary Client, described as an eligible investment advice arrangement (EIAA). The EIAA must make contain specific representations, including a fiduciary statement, details of fees and compensation, affiliations and services rendered.
2. Fiduciary Clients must receive disclosures each year that update information provided in the EIAA.
3. Advisers providing “off model” advice to a Fiduciary Client must document the basis of any such recommendations and include the reasons for any deviation from advice generated by the computer model or asset allocation portfolio.
4. Fiduciary adviser firms must adopt and follow written policies and procedures designed to assure compliance with the conditions of the exemption.
5. Each adviser must undergo an annual “408g Audit” that evaluates the adviser’s compliance with the EIAA as well as its own policies and procedures.
These new regulations will require significant changes in a number of areas. We are in the process of assisting our clients with developing and implementing solutions (e.g., updating existing agreements, drafting disclosure documents, amending compliance and supervisory procedures, obtaining suitable fiduciary insurance, etc.). E&W is also working with DALBAR, Inc. to further assist our clients in conducting 408g Audits and educating advisers on the new requirements.
Once the regulations are finalized, we will issue a comprehensive report and sponsor a webcast to discuss the impact of the regulations on broker-dealers, RIAs and their representatives. In the meantime, please feel free to contact Jason Roberts with any questions or for assistance in preparing a comment for submission to the DoL.
posted by Jason C. Roberts, Esq. at
1:10 PM
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