How Will the SEC’s Best Interest Rules Impact Plan Sponsors?

Recently, the Securities and Exchange Commission (SEC) adopted a new set of rules and related interpretations that include increased standards for broker-dealers and offers clarification around the duties of registered investment advisors (RIAs). These rules are focused on retail investors including individual retirements accounts (IRAs), health savings accounts (HSAs), and retirement rollover plans. This new guidance is expected to impact the advice plan participants receive.

New SEC Guidance

  • Regulation Best Interest (RBI): This new regulation creates a standard of conduct for broker-dealers, requiring them to act in the best interest of the retail customer as they recommend transactions and investment strategy.
  • Standard of Conduct for Investment Advisors: The interpretations that came in the statement from the SEC included clarification of RIA’s fiduciary duty, including the duty of care and the duty of loyalty. It does not create new obligations, simply clarification to the standards.
  • “Solely Incidental” Advice Exclusion: Broker-dealers have an exclusion for when they are providing advice that is “solely incidental” to the work they are performing and when that advice causes them to be subject to the Advisers Act fiduciary duties. This is particularly relevant regarding advice on rolling over retirement plan or transfer assets from an employer retirement plan to an IRA.
  • Relationship Summary Form: To ensure retail consumers are aware of their relationship with their advisor and the duties the advisor has towards them, broker-dealers and RIAs now have a simple form that provides information about their work and what that means for the consumer.

These changes will have some limited impact on retirement plan sponsors, but more impact on plan participants who receive advice, particularly when they are requesting advice regarding retirement plan rollovers. Previous proposed regulations did not clarify whether they covered rollover advice that didn’t involve the sale of securities. The latest clarifications are designed to make it clear that it is always important to put the customer’s interest first when making rollover recommendations.

While broker-dealers can still recommend proprietary products in certain conditions, they must have specific disclosures and must further maintain and enforce conflict of interest policies. Even if they are recommending a proprietary product, they must do so if it’s in the customer’s best interest. For investment advisors, recommendations about rollovers are subject to their duties of care and loyalty. Education, such as providing general financial information or explaining the provisions of a plan, is separate and not considered under these standards, so long as that education does not cross the line into and become a recommendation.

As with all rule changes and interpretative statements issued regarding benefits plans, the attorneys at Hall Benefits Law will be paying close attention. Even if the impact to plan sponsors is small, knowing that the advice their employees get in a retail setting regarding rolling over their retirement plans is being governed by a certain standard is important. To learn more, call our Georgia-based team today at 678-439-6236 or visit the Hall Benefits Law website.

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Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

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