Final DOL Fiduciary Rule Applies to HSA Plan Advisors

Last Friday, the Department of Labor released its highly anticipated final version of the fiduciary rule that includes a significant expansion of those who will fall under the definition of a fiduciary. The rule will now apply to advisors who offer advice on health savings accounts (HSAs).

HISTORY

In 2010, the DOL began to develop a proposal to change the way a fiduciary is defined under the Employee Retirement Income Security Act of 1974 (ERISA). At the time, the proposal was withdrawn due to weighty opposition from the financial services industry, bankers, and insurers who objected to what they said was costly government interference that would harm the relationship between advisors and their clients. However, in 2015 President Obama allowed for the proposal to move forward and he garnered support from the AARP, the nation’s largest, liberal senior organization.

The new rule takes effect on June 7, 2016. Investment advisors and brokers offering advice on retirement accounts such as IRAs, 401(k) plans, health savings accounts, and other tax-deferred accounts must adhere to the rule beginning April 10, 2017. Additional applicability dates will begin in 2018.

5 THINGS TO KNOW ABOUT THE NEW RULE

1. The rule changes and expands the definition of a “fiduciary” of an employee benefit plan under ERISA “as a result of giving investment advice to a plan or its participants or beneficiaries.” This includes anyone offering advice on HSAs.
2. The rule applies to the definition of a fiduciary of a plan, “including an individual retirement account (IRA) under the IRS Code of 1986 and treats persons who advise investment advice or recommendations for a fee or other compensation with respect to assets of a plan or IRA as fiduciaries in a wider array of advice relationships”.
3. What used to be considered suitable retirement advice is no longer sufficient. When offering retirement advice, advisors must now act in a client’s “best interest.” This prohibits the receipt of financial incentives or commissions that might influence an advisor to offer advice contrary to a client’s best interest. Commissions are still permissible as long as advisors act in the best interest of a client while at the same time disclosing conflicts of interest.  Advisors may still recommend proprietary products.
4. Consumers must be provided written disclosure of fees and conflicts of interest. Advisors must post compensation on their websites.
5. Modification to forms, policies, and procedures will result. Many firms will need to modify their client agreements, and some will need to change their policies and procedures to adhere to the new rule.

Advocates believe the new rule will help save consumers from paying high commissions and fees to advisors or brokers while removing conflicts of interest issues. The president has cited claims that families in America are losing upwards of $17 billion annually due to fees and costs associated with the management of families’ retirement funds.

However, opponents say the new rule will add unnecessary regulatory and compliance costs and will increase costs for lower income investors that could leave small investors without advisors. Critics also cite concerns over the potentials for increased risk of frivolous litigation and reduced financial product options.

The 1,023 page rule is still being analyzed by all sides including the U.S. Chamber of Commerce and financial industry groups. Although Congress has 60 days to pass a resolution opposing the rule, it would likely be vetoed by the President.

TO READ THE FINAL RULE VISIT http://webapps.dol.gov/FederalRegister/PdfDisplay.aspx?DocId=28806