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© Practising Law Institute

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Practising Law Institute1177 Avenue of the Americas

New York, New York 10036

Investment Management Institute

2017

Volume One

CORPORATE LAW AND PRACTICECourse Handbook Series

Number B-2309

Co-ChairsBarry P. Barbash

Paul F. Roye


26

The DOL Fiduciary Rule (PowerPoint slides)

Erin K. Cho

Groom Law Group, Chartered

Jason Bortz

Capital Research and Management Company

Peter E. Haller

Willkie Farr & Gallagher LLP

If you find this article helpful, you can learn more about the subject by going to www.pli.edu to view the on demand program or segment for which it was written.

1-317


1-318


PLI

–In

vest

men

t Man

agem

ent I

nstit

ute

2017

:Th

e D

OL

Fidu

ciar

y R

ule

Mar

ch 2

3, 2

017

1-319


Age

nda

I.In

trodu

ctio

nII.

Def

initi

on o

f a F

iduc

iary

und

er th

e Fi

nal R

ule

III.

Exc

eptio

n to

the

Def

initi

on o

f “In

vest

men

t Adv

ice”

IV.

Pro

hibi

ted

Tran

sact

ion

Exe

mpt

ions

(new

and

am

ende

d)V

.Im

plic

atio

ns fo

r Ass

et M

anag

ers

VI.

Impl

emen

tatio

n D

ates

VII.

Rec

ent J

udic

ial A

ffirm

atio

n of

Rul

eV

III.

Em

ergi

ng Is

sues

and

Tre

nds

IX.

Q&

A

2

1-320


Intro

duct

ion

33

1-321


Intro

duct

ion

Em

ploy

ee R

etire

men

t Inc

ome

Sec

urity

Act

of 1

974

(ER

ISA

) D

uty

of p

rude

nce

and

loya

ltyP

erso

nal l

iabi

lity

for f

iduc

iary

bre

ach

Pla

n lo

sses

D

isgo

rgem

ent o

f pro

fits

Exc

ise

tax

on s

elf-d

ealin

g pr

ohib

ited

trans

actio

nsC

o-fid

ucia

ry li

abilit

yTi

tle I

of E

RIS

A do

es n

ot a

pply

to IR

As

4

1-322


Intro

duct

ion

(con

t.)

ER

ISA

Pla

nsP

lan

spon

sors

and

par

ticip

ants

cou

ld s

ue u

nder

ER

ISA

for f

iduc

iary

br

each

IRA

s IRA

owne

rs d

o no

t hav

e a

stat

utor

y rig

ht o

f act

ion

for f

iduc

iary

bre

ach

IRS

can

enf

orce

pro

hibi

ted

trans

actio

n ex

cise

taxe

sC

reat

e a

cont

ract

ual c

laim

for f

iduc

iary

bre

ach?

Yes

, und

er B

IC

Exe

mpt

ion

5

1-323


Intro

duct

ion

(con

t.)

On

Apr

il 6,

201

6, th

e D

OL

issu

ed fi

nal r

egul

atio

ns e

xpan

ding

the

defin

ition

of

fiduc

iary

to e

mpl

oyee

pla

ns a

nd IR

As

for p

urpo

ses

of E

RIS

A an

d re

late

d pr

ovis

ions

un

der S

ectio

n 49

75 o

f the

Inte

rnal

Rev

enue

Cod

e (th

e C

ode)

The

suite

of r

egul

atio

ns a

nd n

ew a

nd a

men

ded

clas

s ex

empt

ions

(col

lect

ivel

y, th

e fin

al ru

le) i

nclu

des

the

follo

win

g:Fi

nal r

egul

atio

n re

-def

inin

g w

ho is

a “f

iduc

iary

” by

reas

on o

f pro

vidi

ng in

vest

men

t adv

ice

to

a pl

an o

r IR

AB

est I

nter

est C

ontra

ct e

xem

ptio

n (B

IC)

Prin

cipa

l Tra

nsac

tion

exem

ptio

nA

men

dmen

ts to

sev

eral

exi

stin

g pr

ohib

ited

trans

actio

n cl

ass

exem

ptio

ns (g

ener

ally

lim

its

the

avai

labi

lity

of th

ese

amen

ded

exem

ptio

ns, a

nd a

lso

impo

ses

the

Impa

rtial

Con

duct

S

tand

ards

)P

TEs

-75-

1, 7

7-4,

80-

83, 8

3-1,

84-

24 a

nd 8

6-12

8Fi

nal r

egul

atio

n, a

men

dmen

ts to

cla

ss e

xem

ptio

ns, a

nd c

erta

in c

ondi

tions

of t

he B

IC,

not a

pplic

able

unt

il A

pril

10, 2

017,

and

cer

tain

dis

clos

ure

and

othe

r pro

visi

ons

not

appl

icab

le u

ntil

Janu

ary

1, 2

018

6

1-324


Def

initi

on o

f Fid

ucia

ry u

nder

Fin

al R

ule

77

1-325


Def

initi

on o

f Fid

ucia

ry u

nder

Fin

al R

ule

Und

er E

RIS

A S

ectio

n 3(

21),

a pe

rson

is a

fidu

ciar

y if

the

pers

on –

Exe

rcis

es a

ny d

iscr

etio

n ov

er th

e m

anag

emen

t or i

nves

tmen

t of t

he E

RIS

A P

lan’

s or

IRA’

s as

sets

;R

ende

rs in

vest

men

t adv

ice

for a

fee

or o

ther

com

pens

atio

n, d

irect

or i

ndire

ct,

with

resp

ect t

o an

y m

oney

or o

ther

pro

perty

of t

he P

lan,

or h

as a

ny a

utho

rity

or

resp

onsi

bilit

y to

do

so, o

rH

as a

ny d

iscr

etio

n ov

er th

e pl

an’s

adm

inis

tratio

nTh

e fin

al ru

le is

not

abo

ut “d

iscr

etio

nary

” inv

estm

ent m

anag

emen

t

8

1-326


Def

initi

on o

f Fid

ucia

ry u

nder

Fin

al R

ule

(con

t.)

Fina

l rul

e de

finin

g fid

ucia

ry is

muc

h br

oade

r tha

n th

e ol

d fiv

e-pa

rt te

st:

Und

er th

e ru

le is

sued

by

the

DO

L in

197

5, a

per

son

wou

ld b

e an

“inv

estm

ent

advi

ce fi

duci

ary”

if th

e pe

rson

: (1)

rend

ers

advi

ce a

s to

the

valu

e of

sec

uriti

es o

r m

akes

reco

mm

enda

tions

as to

the

advi

sabi

lity

of in

vest

ing

in, p

urch

asin

g or

se

lling

sec

uriti

es; (

2) o

n a

regu

lar b

asis

; (3)

pur

suan

t to

a m

utua

l agr

eem

ent,

arra

ngem

ent o

r und

erst

andi

ng th

at; (

4) th

e ad

vice

will

ser

ve a

s th

e pr

imar

y ba

sis

for i

nves

tmen

t dec

isio

ns, a

nd th

at; (

5) th

e ad

vice

will

be

indi

vidu

aliz

edba

sed

on th

e pa

rticu

lar n

eeds

of t

he p

lan

Und

er th

e fiv

e-pa

rt te

st, r

egul

atio

n di

stin

guis

hed

sale

s co

nver

satio

ns fr

om

tailo

red

advi

ceD

OL’

s vi

ew is

that

bro

kers

, RIA

s, c

onsu

ltant

s an

d ot

hers

pla

y a

cent

ral r

ole

in s

hapi

ng p

lan

and

IRA

inve

stm

ents

, but

wer

e no

t bei

ng h

eld

acco

unta

ble

and

wer

e ab

le to

avo

id fi

duci

ary

stat

us a

nd o

blig

atio

ns

9

1-327


Def

initi

on o

f Fid

ucia

ry u

nder

Fin

al R

ule

(con

t.)

10

A re

com

men

datio

n as

to h

ow se

curit

ies o

r inv

estm

ent

prop

erty

shou

ld b

e in

vest

ed a

fter a

rollo

ver,

trans

fer o

r di

strib

utio

n to

or f

rom

an

IRA

A re

com

men

datio

n as

to th

e m

anag

emen

t of s

ecur

ities

or

othe

r inv

estm

ent p

rope

rty, i

nclu

ding

, but

not

lim

ited

to,

reco

mm

enda

tions

on:

•In

vest

men

t pol

icie

s or s

trate

gies

•Po

rtfol

io c

ompo

sitio

n•

Sele

ctio

n of

oth

erpe

rson

s to

prov

ide

inve

stm

ent

advi

ce o

r man

agem

ent s

ervi

ces

•Se

lect

ion

of a

ccou

nt a

rran

gem

ents

(bro

kera

ge v

s. ad

viso

ry)

•W

heth

er, i

n w

hat a

mou

nt a

nd in

wha

t for

m a

nd to

w

hat d

estin

atio

n to

take

a ro

llove

r or d

istri

butio

n fr

om

a pl

an o

r IR

A

A re

com

men

datio

n as

to th

e ad

visa

bilit

y of

ac

quiri

ng, h

oldi

ng, d

ispo

sing

of o

r ex

chan

ging

secu

ritie

s or i

nves

tmen

t pr

oper

ty

The

pers

on re

pres

ents

or

ackn

owle

dges

act

ing

as a

fidu

ciar

y

The

pers

on re

nder

s adv

ice

purs

uant

to

an

agre

emen

t, ar

rang

emen

t or

unde

rsta

ndin

g (w

ritte

n or

ver

bal)

that

th

e ad

vice

is b

ased

on

the

parti

cula

r in

vest

men

t nee

ds o

f the

reci

pien

t

The

pers

on d

irect

s adv

ice

to a

spec

ific

reci

pien

t or r

ecip

ient

s reg

ardi

ng th

e ad

visa

bilit

y of

a p

artic

ular

inve

stm

ent

or m

anag

emen

t dec

isio

n w

ith re

spec

t to

secu

ritie

s of o

ther

inve

stm

ent

prop

erty

of t

he p

lan

or IR

A

OR

OR

TOA

Pla

n, p

lan

fiduc

iary

, pl

an p

artic

ipan

t or

bene

ficia

ry, I

RA

or

IRA

ow

ner

A fe

e or

oth

er

com

pens

atio

n (d

irect

or

indi

rect

)

FOR

IF

OR OR

1-328


Def

initi

on o

f Fid

ucia

ry u

nder

Fin

al R

ule

(con

t.)

Wha

t is

cons

ider

ed a

reco

mm

enda

tion

-prin

cipl

es fo

r eva

luat

ing

a po

tent

ial

reco

mm

enda

tion

Con

tent

, Con

text

and

Pre

sent

atio

n–

com

mun

icat

ion

that

is re

ason

ably

vie

wed

as

a su

gges

tion

to e

ngag

e in

or r

efra

in fr

om ta

king

a p

artic

ular

cou

rse

of a

ctio

nFa

cts

and

circ

umst

ance

s de

term

inat

ion

Sta

ndar

d is

inte

nded

to b

e ob

ject

ive,

not

sub

ject

ive

Indi

vidu

al ta

ilorin

g su

gges

ts a

reco

mm

enda

tion

Ser

ies

of a

ctio

ns in

the

aggr

egat

e co

uld

lead

to a

reco

mm

enda

tion

Exa

mpl

es o

f com

mun

icat

ions

that

wou

ld n

otbe

a re

com

men

datio

n•

Non

-indi

vidu

aliz

ed p

latfo

rms

offe

red

to p

artic

ipan

t-dire

cted

ER

ISA

plan

s, if

cer

tain

co

nditi

ons

met

•

Sel

ectio

n an

d m

onito

ring

incl

udin

g R

FP re

spon

se s

ampl

e lin

e-up

s if

certa

in c

ondi

tions

m

et

•C

erta

in ty

pes

of g

ener

al c

omm

unic

atio

ns th

at a

reas

onab

le p

erso

n w

ould

not

vie

w a

s an

in

vest

men

t rec

omm

enda

tion

•In

vest

men

t edu

catio

n –

perm

its e

duca

tion

sim

ilar t

o th

at c

urre

ntly

allo

wed

, but

pop

ulat

ing

asse

t allo

catio

n m

odel

s or

inte

ract

ive

mat

eria

ls w

ith s

peci

fic in

vest

men

t alte

rnat

ives

not

pe

rmitt

ed fo

r IR

As

11

1-329


Exc

eptio

ns to

the

Def

initi

on o

f “In

vest

men

t Adv

ice”

1212

1-330


Tran

sact

ions

with

Inde

pend

ent P

lan

Fidu

ciar

ies

with

Fin

anci

al

Exp

ertis

e (“

Inde

pend

ent F

iduc

iary

Exc

eptio

n”)

Adv

ice

in c

onne

ctio

n w

ith a

n ar

m’s

-leng

th s

ale,

pur

chas

e, lo

an, e

xcha

nge

or

othe

r tra

nsac

tion

rela

ted

to th

e in

vest

men

t of s

ecur

ities

or o

ther

pro

perty

, w

here

the

plan

is re

pres

ente

d by

:A

Ban

k, In

sura

nce

Com

pany

, RIA

or B

roke

r/Dea

ler;

orA

fiduc

iary

with

cus

tody

, man

agem

ent o

r con

trol o

f ass

ets

of a

t lea

st $

50 m

illion

Mus

t obt

ain

repr

esen

tatio

ns o

r for

m a

reas

onab

le b

elie

f tha

t cou

nter

party

is

a fid

ucia

ry to

the

plan

or I

RA

, cap

able

of e

valu

atin

g in

vest

men

t ris

ks, a

nd is

re

spon

sibl

e fo

r exe

rcis

ing

inde

pend

ent j

udgm

ent

Mus

t inf

orm

cou

nter

party

you

are

not

und

erta

king

to p

rovi

de im

parti

al a

dvic

e or

adv

ice

in a

fidu

ciar

y ca

paci

ty A

ND

of t

he e

xist

ence

and

nat

ure

of th

e se

ller’s

fina

ncia

l int

eres

ts in

the

trans

actio

nC

anno

t rec

eive

dire

ct c

ompe

nsat

ion

from

the

plan

, pla

n fid

ucia

ry, p

lan

parti

cipa

nts

or b

enef

icia

ries,

IRA

or IR

A ow

ner f

or p

rovi

ding

inve

stm

ent

advi

ce in

con

nect

ion

with

the

trans

actio

n

13

1-331


Inde

pend

ent F

iduc

iary

Exc

eptio

n –

Issu

es W

hen

Dea

ling

with

P

lan

Spo

nsor

or I

nves

tmen

t Com

mitt

ee

$50

milli

on te

stIt

is p

ossi

ble

to a

ggre

gate

the

asse

ts fr

om d

iffer

ent p

lans

ove

r whi

ch th

e in

depe

nden

t fid

ucia

ry h

as d

iscr

etio

n or

con

trol t

o re

ach

$50

mill

ion

It is

pos

sibl

e to

agg

rega

te p

lan

asse

ts w

ith n

on-p

lan

corp

orat

e as

sets

in c

erta

in

circ

umst

ance

sFi

nanc

ial e

xper

tise

of in

depe

nden

t fid

ucia

ryH

ow to

form

a re

ason

able

bel

ief a

s to

fina

ncia

l exp

ertis

e (e

.g.,

know

ledg

e th

roug

h pr

ior c

ours

e of

dea

ling,

edu

catio

nal b

ackg

roun

d, jo

b ro

le?)

C

an a

repr

esen

tatio

n be

obt

aine

d th

roug

h ne

gativ

e co

nsen

t?Is

the

selle

r “in

depe

nden

t” of

the

inte

rmed

iary

?Th

e fin

al ru

le d

oes

not d

efin

e “in

depe

nden

t”Th

e pr

eam

ble

to th

e fin

al ru

le (a

nd F

AQ

28,

Par

t II)

requ

ires

an e

xam

inat

ion

of fi

nanc

ial

inte

rest

s (e

.g.,

fees

and

com

pens

atio

n), o

wne

rshi

p in

tere

sts,

or o

ther

rela

tions

hip,

ag

reem

ent o

r und

erst

andi

ng th

at w

ould

lim

it th

e in

term

edia

ry’s

abi

lity

to c

arry

out

its

fiduc

iary

resp

onsi

bilit

y to

any

of i

ts re

tirem

ent i

nves

tor c

lient

s.

14

1-332


Oth

er E

xcep

tions

Sw

ap a

nd S

ecur

ity-B

ased

Sw

ap T

rans

actio

nsA

dvic

e is

exe

mpt

, if t

he s

wap

is c

over

ed u

nder

the

Com

mod

ity E

xcha

nge

Act

or

the

Sec

uriti

es E

xcha

nge

Act

Pla

n is

repr

esen

ted

by a

n in

depe

nden

t fid

ucia

ryS

wap

dea

ler i

s no

t act

ing

as a

n ad

vise

r und

er D

odd-

Fran

k to

the

plan

Em

ploy

ees

of P

lan

Spo

nsor

sR

ule

exem

pts

advi

ce fr

om H

R, p

ayro

ll an

d ot

her e

mpl

oyee

s of

a p

lan

spon

sor

The

empl

oyee

can

not r

ecei

ve a

ny s

peci

al c

ompe

nsat

ion

in c

onne

ctio

n w

ith th

e ad

vice

15

1-333


Pro

hibi

ted

Tran

sact

ion

Exe

mpt

ions

(new

and

am

ende

d)

1616

1-334


New

Pro

hibi

ted

Tran

sact

ion

Exe

mpt

ions

-In

trodu

ctio

n

The

final

rule

pro

vide

s tw

o ne

w P

rohi

bite

d Tr

ansa

ctio

n E

xem

ptio

ns

The

Bes

t Int

eres

t Con

tract

Exe

mpt

ion

Th

e P

rinci

pal T

rans

actio

n E

xem

ptio

n

The

prim

ary

purp

ose

of th

e B

IC E

xem

ptio

n is

to p

erm

it tra

nsac

tions

that

oth

erw

ise

wou

ld b

e pr

ohib

ited

on th

e ba

sis

of c

onfli

ct o

f int

eres

t whe

n a

fiduc

iary

adv

iser

re

ceiv

es c

ompe

nsat

ion

as a

resu

lt of

the

fiduc

iary

adv

iser

’s a

dvic

e to

a p

lan

parti

cipa

nt o

r IR

A in

vest

or.

The

BIC

Exe

mpt

ion

perm

its s

uch

paym

ents

(e.g

., co

mm

issi

ons,

12b

-1 fe

es a

nd re

venu

e sh

arin

g to

the

finan

cial

inst

itutio

n), p

rovi

ded

th

e fid

ucia

ry a

dvis

er s

atis

fies

certa

in re

quire

men

ts, w

hich

are

des

igne

d to

redu

ce th

e ris

k of

the

fiduc

iary

adv

iser

pro

vidi

ng c

onfli

cted

adv

ice

The

prim

ary

purp

ose

of th

e P

TE E

xem

ptio

n is

to p

erm

it pr

inci

pal a

nd ri

skle

ss

prin

cipa

l tra

nsac

tions

bet

wee

n a

fiduc

iary

adv

iser

or f

inan

cial

inst

itutio

n an

d a

plan

or

IRA

, with

resp

ect t

o pr

inci

pal t

rade

d as

sets

(i.e

., ce

rtain

deb

t sec

uriti

es, C

Ds

and

unit

inve

stm

ent t

rust

s), p

rovi

ded

that

the

fiduc

iary

adv

iser

and

inst

itutio

n sa

tisfy

cer

tain

re

quire

men

ts

17

1-335


Bes

t Int

eres

t Con

tract

Exe

mpt

ion

(BIC

)

Appl

ies

to “R

etire

men

t Inv

esto

rs” (

plan

par

ticip

ants

and

ben

efic

iarie

s, IR

A ow

ners

and

“ret

ail

fiduc

iarie

s” (n

ot a

ban

k, R

IA, i

nsur

ance

com

pany

, bro

ker/d

eale

r or f

iduc

iary

that

hol

ds o

r has

un

der m

anag

emen

t or c

ontro

l tot

al a

sset

s of

$50

milli

on o

r mor

e)Th

e B

IC E

xem

ptio

n is

ava

ilabl

e to

fidu

ciar

y ad

vise

rs w

ho:

Rec

eive

var

iabl

e co

mpe

nsat

ion

Eng

age

in R

iskl

ess

Prin

cipa

l Tra

nsac

tions

Adv

ise

IRA

and

Pla

n cl

ient

s to

ent

er in

to le

vel f

ee a

dvis

ory

arra

ngem

ents

The

BIC

Exe

mpt

ion

is n

ot a

vaila

ble

to fi

duci

ary

advi

sers

/fina

ncia

l ins

titut

ions

who

:

Als

o ha

ve d

iscr

etio

nary

aut

horit

y or

con

trol w

ith re

spec

t to

the

trans

actio

n

Are

invo

lved

(eve

n vi

a an

affi

liate

) in

a pr

inci

pal t

rans

actio

n w

ith th

e P

lan

Pro

vide

cer

tain

type

s of

“rob

o” a

dvic

e

Are

the

empl

oyer

-spo

nsor

, nam

ed fi

duci

ary

or p

lan

adm

inis

trato

r and

wer

e se

lect

ed to

pr

ovid

e ad

vice

by

a fid

ucia

ry th

at is

not

inde

pend

ent f

rom

the

Adv

iser

, Fin

anci

al In

stitu

tion

or th

eir a

ffilia

tes

Are

con

duct

ing

trans

actio

ns w

ith n

on-re

tail

coun

terp

artie

s

18

1-336


BIC

Exe

mpt

ion

-Con

ditio

ns fo

r Rel

ief

Ack

now

ledg

e fid

ucia

ry s

tatu

sW

ritte

n co

ntra

ct fo

r IR

As

(but

not

ER

ISA

plan

s)M

ust b

e en

tere

d in

to p

rior t

o or

con

tem

pora

neou

sly

to e

xecu

tion

of re

com

men

ded

trans

actio

nM

ay u

se n

egat

ive

cons

ent (

30 d

ays

wai

t) un

til J

an. 1

, 201

8 to

am

end

exis

ting

IRA

sE

RIS

A pl

ans

are

requ

ired

to p

rovi

de c

erta

in w

ritte

n di

sclo

sure

s, n

ot a

writ

ten

cont

ract

May

not

con

tain

any

pro

hibi

ted

term

s (a

s se

t for

th in

the

rule

)S

tate

men

t atte

stin

g to

impa

rtial

con

duct

A

dvic

e th

at is

in th

e “b

est i

nter

est”

of th

e re

tirem

ent i

nves

tor –

a st

anda

rd s

imila

r to

ER

ISA’

s pr

uden

ce a

nd lo

yalty

requ

irem

ent

Rea

sona

ble

com

pens

atio

nN

o m

ater

ially

mis

lead

ing

stat

emen

tsW

arra

ntie

s by

the

finan

cial

inst

itutio

n pe

rtain

ing

to p

olic

es a

nd p

roce

dure

s,

docu

men

tatio

n of

mat

eria

l con

flict

s, n

o co

mpe

nsat

ion

stru

ctur

es th

at e

ncou

rage

ad

vise

rs to

mak

e re

com

men

datio

ns n

ot in

the

best

inte

rest

of t

he re

tirem

ent i

nves

tor

Ext

ensi

ve R

equi

red

Dis

clos

ures

At t

ime

of re

com

men

ded

trans

actio

n, w

ebsi

te o

f fin

anci

al in

stitu

tion,

upo

n re

ques

t

19

1-337


BIC

Exe

mpt

ion

–B

IC L

ite

Leve

l Fee

Fid

ucia

ries

(“B

IC L

ite”)

The

only

fee

or c

ompe

nsat

ion

rece

ived

by

the

finan

cial

inst

itutio

n, a

dvis

er a

nd a

ny a

ffilia

te

for a

dvic

e or

inve

stm

ent m

anag

emen

t ser

vice

s is

a “l

evel

fee”

A le

vel f

ee is

a fe

e ba

sed

on a

fixe

d pe

rcen

tage

of t

he v

alue

of t

he a

sset

s or

a s

et fe

e

A le

vel f

ee c

anno

t var

y w

ith th

e pa

rticu

lar i

nves

tmen

t rec

omm

enda

tion

and

cann

ot b

e a

com

mis

sion

or t

rans

actio

n-ba

sed

fee

Leve

l Fee

Req

uire

men

tsC

ompl

y w

ith th

e Im

parti

al C

ondu

ct S

tand

ards

Writ

ten

fiduc

iary

ack

now

ledg

men

t (al

thou

gh, e

xcep

tion

from

the

cont

ract

requ

irem

ent)

Whe

n re

com

men

ding

a ro

llove

r to

an IR

A or

sw

itch

from

a c

omm

issi

on-b

ased

acc

ount

to a

fe

e-ba

sed

acco

unt,

docu

men

t why

the

leve

l fee

arra

ngem

ent i

s in

the

best

inte

rest

of t

he

clie

nt (i

.e.,

com

ply

with

leve

l fee

pro

visi

ons

of B

IC E

xem

ptio

n)If

any

othe

r typ

es o

f fee

s ar

e re

ceiv

ed (e

.g.,

reve

nue

shar

ing,

12b

-1 fe

es o

r com

mis

sion

s)

“full

BIC

” mus

t be

used

inst

ead

Res

trict

ions

on

prod

ucts

that

may

be

offe

red

(no

prop

rieta

ry o

r pro

duct

s th

at w

ould

ge

nera

te th

ird-p

arty

pay

men

ts)

20

1-338


BIC

Exe

mpt

ion

–B

IC P

lus

Pro

prie

tary

Pro

duct

s (“

BIC

Plu

s”)

App

lies

whe

re fi

rm re

stric

ts fi

duci

ary

advi

ser’s

reco

mm

enda

tions

to p

ropr

ieta

ry p

rodu

cts

or

that

gen

erat

e th

ird-p

arty

pay

men

tsP

rodu

cts

that

are

man

aged

, iss

ued

or s

pons

ored

by

the

finan

cial

inst

itutio

n or

its

affil

iate

sFi

rm m

ust d

ocum

ent l

imita

tions

on

inve

stm

ent r

ecom

men

datio

n, c

oncl

ude

that

co

mpe

nsat

ion

will

still

be re

ason

able

, and

that

lim

itatio

ns w

ill no

t cau

se im

prud

ent

reco

mm

enda

tions

Sim

ilarly

, the

fina

l rul

es p

urpo

rt to

per

mit

serv

ice

prov

ider

s to

reco

mm

end

an a

dvis

ory

serv

ice

(e.g

., A

UM

acc

ount

s or

fund

s) fo

r a p

lan

or IR

A, b

ut d

oing

so

will

only

be

perm

itted

w

hen

the

AU

M fe

e or

fund

is “d

emon

stra

bly

pref

erab

le” f

or th

e pl

an o

r IR

AG

rand

fath

ered

acc

ount

s P

rovi

des

relie

f for

the

rece

ipt o

f com

pens

atio

n by

the

fiduc

iary

adv

iser

as

a re

sult

of

inve

stm

ent a

dvic

e pr

ovid

ed to

a p

lan

in c

onne

ctio

n w

ith th

e pu

rcha

se, s

ale

or e

xcha

nge

of

inve

stm

ent p

rope

rtyIn

vest

men

t pro

perty

mus

t hav

e be

en a

cqui

red

prio

r to

Apr

il 10

, 201

7Th

e tra

nsac

tion

was

oth

erw

ise

exem

pt o

n th

e da

y it

occu

rred

21

1-339


BIC

Exe

mpt

ion

–D

OL

FAQ

cla

rific

atio

n (O

ctob

er 2

016)

Com

pens

atio

n un

der t

he B

IC E

xem

ptio

n, s

uch

as q

uota

s, a

ppra

isal

s, b

onus

es, s

peci

al a

war

ds,

cann

ot b

e us

ed if

they

are

reas

onab

ly e

xpec

ted

to c

ause

adv

iser

s to

mak

e re

com

men

datio

ns

that

are

not

in th

e be

st in

tere

st o

f the

retir

emen

t inv

esto

rTh

is li

mita

tion

does

not

, cat

egor

ical

ly, p

recl

ude

the

use

of e

scal

atin

g gr

ids

that

are

vol

ume-

base

d, b

ut c

erta

in fa

ctor

s m

ust b

e co

nsid

ered

and

a d

eter

min

atio

n m

ust b

e m

ade

that

the

grid

s do

not

run

coun

ter t

o th

e fu

ndam

enta

l obl

igat

ion

to p

rovi

de a

dvic

e th

at is

in th

e cu

stom

er’s

bes

t in

tere

stFa

ctor

s to

con

side

r inc

lude

:Av

oidi

ng p

assi

ng a

long

a fi

rm-le

vel c

onfli

ct (e

.g.,

if fir

m re

ceiv

es h

ighe

r com

mis

sion

s fo

r se

lling

certa

in m

utua

l fun

ds, g

rid c

anno

t pay

the

advi

ser m

ore

for s

ellin

g sh

ares

of t

he

fund

s th

at p

ay th

e hi

gher

com

mis

sion

s th

an it

doe

s fo

r sel

ling

shar

es o

f the

fund

s th

at p

ay

low

er c

omm

issi

ons)

But

OK

to d

efin

e “c

ompe

nsab

le” r

even

ue th

at g

oes

into

the

grid

in s

uch

a w

ay th

at it

is

leve

l with

in d

iffer

ent b

road

cat

egor

ies

of in

vest

men

ts b

ased

on

neut

ral f

acto

rs th

at a

ren’

t tie

d to

how

lucr

ativ

e th

e in

vest

men

ts a

re fo

r the

firm

Avoi

ding

hav

ing

non-

neut

ral f

acto

rs (i

.e.,

thos

e ba

sed

on th

e fin

anci

al in

tere

sts

of th

e fir

m)

dete

rmin

e th

e di

ffere

nt c

ateg

orie

s of

inve

stm

ents

upo

n w

hich

com

pens

atio

n is

bas

edN

eutra

l fac

tors

, suc

h as

tim

e an

d co

mpl

exity

ass

ocia

ted

with

reco

mm

endi

ng

inve

stm

ents

with

in d

iffer

ent p

rodu

ct c

ateg

orie

s ar

e pe

rmitt

ed

22

1-340


BIC

Exe

mpt

ion

–D

OL

FAQ

cla

rific

atio

n (O

ctob

er 2

016)

Grid

s w

ith g

radu

al in

crea

ses

are

less

like

ly to

cre

ate

impe

rmis

sibl

e in

cent

ives

than

grid

s ch

arac

teriz

ed b

y la

rge

incr

ease

sAv

oid

retro

activ

ity –

new

rate

on

grid

sho

uld

appl

y on

ly to

new

inve

stm

ents

mad

e on

ce th

e th

resh

old

is re

ache

dA

dequ

ate

over

sigh

t of r

ecom

men

datio

ns w

hen

esca

latin

g gr

ids

are

in p

lace

and

adv

iser

is

appr

oach

ing

a th

resh

old

Rec

ruitm

ent B

onus

esS

ign-

on a

war

ds o

r bon

uses

not

tied

to th

e m

ovem

ent o

f acc

ount

s or

ass

ets

to th

e fir

m a

re

perm

issi

ble

unde

r the

full

BIC

Exe

mpt

ion

Bac

k-en

d aw

ards

that

are

tied

to th

e ad

vise

r’s s

atis

fact

ion

of re

venu

e or

ass

et ta

rget

s sh

ould

be

avoi

ded

on a

goi

ng-fo

rwar

d ba

sis.

OK

for f

irms

to h

onor

pre

-exi

stin

g ob

ligat

ions

(as

of O

ctob

er

27, 2

016)

that

are

reas

onab

le a

nd m

onito

red

purs

uant

to c

usto

miz

ed p

olic

ies

and

proc

edur

es

Rob

o-A

dvic

eTh

e fu

ll B

IC E

xem

ptio

n do

es n

ot c

over

adv

ice

prov

ided

sol

ely

thro

ugh

an in

tera

ctiv

e w

eb s

ite in

w

hich

com

pute

r sof

twar

e-ba

sed

mod

els

or a

pplic

atio

ns p

rovi

de re

com

men

datio

ns b

ased

on

pers

onal

info

rmat

ion

that

the

inve

stor

sup

plie

s w

ithou

t any

per

sona

l int

erac

tion

or a

dvic

e fro

m a

n in

divi

dual

adv

iser

(i.e

., ro

bo-a

dvic

e)

BIC

Exe

mpt

ion

is a

vaila

ble

for r

obo-

advi

ce p

rovi

ders

that

are

“lev

el fe

e fid

ucia

ries”

23

1-341


BIC

Exe

mpt

ion

–D

OL

FAQ

cla

rific

atio

n (O

ctob

er 2

016)

Leve

l Fee

Fid

ucia

ries

–FA

Q C

larif

icat

ion

Can

rely

on

BIC

Lite

eve

n if

the

finan

cial

inst

itutio

n of

fers

bot

h le

vel f

ee a

dvis

ory

serv

ices

an

d co

mm

issi

on-b

ased

bro

kera

ge a

ccou

nts

for w

hich

relia

nce

on fu

ll B

IC E

xem

ptio

n w

ould

be

requ

ired

BIC

Lite

is a

vaila

ble

even

if, a

fter r

ollo

ver,

IRA

will

be m

anag

ed o

n a

disc

retio

nary

bas

is, a

s lo

ng a

s ad

vise

r doe

s no

t hav

e di

scre

tion

with

resp

ect t

o th

e de

cisi

on to

roll

over

ass

ets

to

the

IRA

OK

to re

ly o

n B

IC L

ite if

fidu

ciar

y in

vest

men

t adv

ice

incl

udes

reco

mm

enda

tion

to tr

ansf

er

from

a c

omm

issi

on-b

ased

acc

ount

to a

fee-

base

d ac

coun

tC

anno

t rel

y on

BIC

Lite

if a

dvis

er w

ill re

ceiv

e th

ird-p

arty

pay

men

ts s

uch

as 1

2b-1

fees

an

d re

venu

e sh

arin

g pa

ymen

ts b

ecau

se th

ey a

re p

aid

only

for p

artic

ular

inve

stm

ents

that

ar

e in

clud

ed in

the

arra

ngem

ent

Can

not r

ely

on B

IC L

ite fo

r com

mis

sion

or t

rans

actio

n-ba

sed

com

pens

atio

n ar

rang

emen

ts,

or fo

r com

pens

atio

n st

ruct

ures

that

are

lim

ited

to th

e sa

le o

f pro

prie

tary

pro

duct

s be

caus

e th

e av

aila

bilit

y of

the

com

pens

atio

n de

pend

s on

the

reco

mm

enda

tion

of a

pro

duct

and

th

eref

ore

is n

ot le

vel

24

1-342


Prin

cipa

l Tra

nsac

tion

Exe

mpt

ion

Prin

cipa

l Tra

nsac

tion

Exe

mpt

ion

The

Prin

cipa

l Tra

nsac

tion

Exe

mpt

ion

perm

its fi

nanc

ial i

nstit

utio

ns to

pur

chas

e or

sel

l ce

rtain

ass

ets

in “p

rinci

pal t

rans

actio

ns” o

r “ris

kles

s pr

inci

pal t

rans

actio

ns” w

ith p

lans

, pla

n ac

coun

ts o

r IR

As

and

rece

ive

mar

k-up

s, m

ark-

dow

ns o

r sim

ilar p

aym

ents

Prin

cipa

l tra

ded

asse

ts a

re (i

) a d

ebt s

ecur

ity, (

ii) C

D, (

iii) in

tere

sts

in a

Uni

t Inv

estm

ent

Trus

t, or

(iv)

an

inve

stm

ent p

erm

itted

pur

suan

t to

an in

divi

dual

exe

mpt

ion

gran

ted

by th

e D

OL

“Impa

rtial

con

duct

” sta

ndar

ds a

nd d

iscl

osur

e re

quire

men

tsD

oes

not a

llow

sal

es to

pla

ns o

r IR

As

of s

ecur

ities

in a

n un

derw

ritin

g in

whi

ch th

e fin

anci

al

inst

itutio

n is

a s

elle

r of s

ecur

ities

issu

ed b

y th

e fin

anci

al in

stitu

tion

At t

he ti

me

of th

e tra

nsac

tion,

the

secu

rity

bein

g pu

rcha

sed

poss

esse

s no

gre

ater

than

m

oder

ate

cred

it ris

k, a

ndS

uffic

ient

ly li

quid

that

the

secu

rity

can

be s

old

at o

r nea

r its

car

ryin

g va

lue

Dis

clos

ure

requ

irem

ents

Con

firm

sA

nnua

l dis

clos

ure

(or u

pon

requ

est)

Pre

-tran

sact

ion

disc

losu

re

25

1-343


Pro

hibi

ted

Tran

sact

ion

Exe

mpt

ion

84-2

4

Sig

nific

antly

nar

row

ed th

e sc

ope

of re

lief

Rec

eipt

of c

omm

issi

ons

on fi

xed-

rate

ann

uity

con

tract

s (IR

As

and

plan

s)R

ecei

pt o

f mut

ual f

und

com

mis

sion

s (p

lans

)C

omm

issi

on is

nar

row

ly d

efin

edM

ust u

se B

est I

nter

est C

ontra

ct E

xem

ptio

n to

rece

ive

com

mis

sion

s on

va

riabl

e or

fixe

d in

dexe

d an

nuiti

es

26

1-344


Oth

er C

lass

Exe

mpt

ions

Pro

hibi

ted

Tran

sact

ion

Exe

mpt

ion

77-4

Cov

ers

rece

ipt o

f com

pens

atio

n fro

m a

ffilia

ted

mut

ual f

unds

Am

ende

d to

inco

rpor

ate

Impa

rtial

Con

duct

Sta

ndar

ds fo

r IR

A fid

ucia

ries

Pro

hibi

ted

Tran

sact

ion

Exe

mpt

ion

86-1

28C

over

s pa

ymen

t of c

ompe

nsat

ion

of a

ffilia

ted

brok

er-d

eale

rsA

men

ded

to re

mov

e re

lief f

or IR

A in

vest

men

t adv

ice

fiduc

iarie

s an

d in

corp

orat

e Im

parti

al C

ondu

ct S

tand

ards

27

1-345


Impl

icat

ions

for A

sset

Man

ager

s

2828

1-346


Type

s of

Fee

s –

Reg

iste

red

Fund

s

29

Fee

Type

12b-

1 Fe

esFr

ont-E

nd S

ales

C

harg

esS

ub-T

rans

fer

Age

ncy

Fees

Rev

enue

S

harin

g

Fund

ing

Sou

rce

Fee

Stru

ctur

e

Fee

Des

crip

tion

Fund

Ret

aine

d fro

m

Inve

stm

ent i

nto

Fund

Fund

Adv

iser

Can

var

y by

cla

ss.

An

inte

rmed

iary

may

re

bate

all

or p

art o

f th

e fe

es to

an

elig

ible

cus

tom

er

Can

var

y by

cla

ss o

r qu

alify

for a

wai

ver,

but

othe

rwis

e no

t ne

gotia

ble

As

nego

tiate

d. S

ome

fund

s m

ay h

ave

limits

on

am

ount

s th

at m

ay

be p

aid

by th

e Fu

nd

As

nego

tiate

d

•P

lan

appr

oved

(and

an

nual

ly re

appr

oved

) by

Fun

d’s

Boa

rd

•Fe

es b

ased

on

tota

l ne

t ass

ets

inve

sted

in

the

appl

icab

le s

hare

cl

ass.

12b

-1 fe

e ca

nnot

var

y w

ithin

a

shar

e cl

ass

•O

ngoi

ng e

xpen

se o

f a

Fund

•S

truct

ure/

fee

esta

blis

hed

at th

e in

cept

ion

of th

e sh

ares

cl

ass

as a

ppro

ved

by

the

Fund

Boa

rd

•C

an b

e su

bjec

t to

redu

ctio

ns o

r wai

vers

to

spe

cific

cla

sses

of

inve

stor

s as

des

crib

ed

in th

e pr

ospe

ctus

•Fe

es p

aid

as th

e re

sult

of o

mni

bus

acco

untin

g an

d ne

twor

king

ar

rang

emen

ts

•P

aym

ent s

truct

ure

acco

rdin

g to

vol

ume

of s

ub a

ccou

nts

or

disc

lose

d ac

coun

ts,

and/

or b

ased

on

tota

l ne

t ass

ets

of

inte

rmed

iary

in

vest

ed in

ap

plic

able

sha

re

clas

s

•M

ay b

e in

add

ition

to

othe

r for

ms

of

com

pens

atio

n

•M

ay b

e m

ade

for

mar

ketin

g,

dist

ribut

ion,

pr

omot

iona

l, or

sub

-tra

nsfe

r age

ncy

serv

ices

1-347


Impl

icat

ions

for A

sset

Man

ager

s –

Reg

iste

red

Fund

s

Ther

e w

ill li

kely

be

a va

riety

of r

espo

nses

to th

e fin

al ru

le, a

t lea

st in

itial

lyB

IC re

quire

men

ts w

ill ha

ve a

n im

pact

, dire

ct a

nd in

dire

ct, o

n as

set m

anag

ers

and

inte

rmed

iarie

s, a

nd

will

driv

e ch

ange

s in

inve

stm

ent p

rodu

cts

Impa

rtial

con

duct

sta

ndar

dFo

cus

on “b

est i

nter

est”

stan

dard

like

ly to

impa

ct n

atur

e an

d ty

pe o

f rec

omm

ende

d fu

nds

and

othe

r inv

estm

ent p

rodu

cts

and

serv

ices

, and

leve

l and

sco

pe o

f dili

genc

eP

roce

dura

l pru

denc

e re

view

whe

n in

vest

igat

ing

the

mer

its o

f a re

com

men

datio

nA

dapt

ing

to th

e ne

w d

iscl

osur

e re

quire

men

tsLi

kely

dem

and

for l

ower

-cos

t pro

duct

opt

ions

Mov

emen

t aw

ay fr

om c

lass

es th

at p

ay 1

2b-1

fees

Sha

re c

lass

ratio

naliz

atio

n fo

r ret

irem

ent i

nves

tors

Furth

er e

ncou

rage

“I c

lass

” and

“R c

lass

” sha

res

“R5”

(no

12b-

1) a

nd “R

6” (n

o fo

rm o

f int

erm

edia

ry c

ompe

nsat

ion:

12b

-1 o

r sub

-TA

)C

erta

in in

term

edia

ries

may

insi

st o

n in

divi

dual

ized

cla

sses

(arg

uabl

y no

t nec

essa

ry w

here

sub

-TA

fees

may

be

paid

“up

to” a

cer

tain

am

ount

-co

nsid

er w

heth

er ju

stifi

ed)

Cer

tain

inte

rmed

iarie

s m

ay c

hoos

e to

cha

rge

exte

rnal

ized

com

mis

sion

s on

“cle

an s

hare

” cla

sses

C

apita

l Gro

up N

o-A

ctio

n Le

tter (

Janu

ary

11, 2

017)

Pot

entia

l for

redu

ctio

n in

sub

-TA

fees

30

1-348


Impl

icat

ions

for A

sset

Man

ager

s –

Reg

iste

red

Fund

s

Dis

tribu

tion

arra

ngem

ents

and

pay

men

ts m

ay b

e re

stru

ctur

ed (e

.g.,

leve

l rev

enue

sh

arin

g ac

ross

fund

s on

a p

latfo

rm)

Con

sequ

ence

s if

inte

rmed

iarie

s of

fer f

ewer

fund

s on

thei

r pla

tform

sC

ould

per

mit

fiduc

iarie

s an

d th

eir f

irms

to b

ette

r (or

mor

e ea

sily

) com

ply

with

Impa

rtial

C

ondu

ct S

tand

ards

thro

ugh

a m

ore

man

agea

ble

dilig

ence

pro

cess

Pot

entia

l cla

ss a

ctio

n lit

igat

ion

cons

eque

nces

of f

und

conc

entra

tion

?

Fund

s th

at d

efy

com

para

bilit

y by

inde

pend

ent f

und

rese

arch

com

pani

es (i

.e.,

the

fund

isn’

t nea

tly c

ateg

oriz

ed, b

ut p

erfo

rms

wel

l giv

en it

s st

rate

gy) c

ould

stru

ggle

to

rem

ain

on in

term

edia

ries’

reco

mm

ende

d lis

tsW

hat m

etho

dolo

gy w

ill fid

ucia

ries

empl

oy to

sat

isfy

obl

igat

ions

und

er B

IC in

con

nect

ion

with

fund

sel

ectio

n ?

Use

of B

IC’s

leve

l fee

fidu

ciar

y pr

ovis

ions

Fully

ext

erna

lize

cost

s to

the

retir

emen

t inv

esto

rW

ould

requ

ire e

quiv

alen

t of “

R6”

sha

res

with

no

inte

rmed

iary

com

pens

atio

n fro

m fu

nd o

r fu

nd a

dvis

erN

o tra

nsac

tion

fees

or c

omm

issi

ons

31

1-349


Impl

icat

ions

for A

sset

Man

ager

s –

Reg

iste

red

Fund

s

Org

aniz

atio

nal C

onsi

dera

tions

Inte

rnal

team

s pr

epar

ed to

ana

lyze

and

add

ress

the

DO

L ru

le re

quire

men

ts

Sig

nific

ant I

T bu

ild re

quire

d to

com

ply

with

exp

ecte

d de

man

ds o

f int

erm

edia

ries

Rev

iew

fund

mat

eria

ls (r

egis

tratio

n st

atem

ent,

web

site

, inv

esto

r com

mun

icat

ions

) and

ag

reem

ents

for c

onsi

sten

cy a

nd c

ompl

ianc

e w

ith th

e ru

le

Trai

ning

for s

ales

team

s to

bet

ter u

nder

stan

d im

pact

of t

he ru

les

Cal

l cen

ter s

uppo

rt -s

epar

ate

call

cent

er fo

r IR

A cl

ient

s, c

aref

ully

scr

ipte

d re

spon

ses

to

retir

emen

t inv

esto

rs

Con

tinua

tion

of o

mni

bus

mod

el v

s. u

se o

f fun

d’s

trans

fer a

gent

May

resu

lt in

fees

pai

d di

rect

ly b

y pl

an o

r IR

A vs

. out

of f

unds

Con

verg

ence

of s

tand

ards

and

dis

clos

ures

for r

etire

men

t inv

estm

ent a

ccou

nts

and

non-

retir

emen

t acc

ount

s –

impa

ct o

n cl

ient

exp

erie

nce

32

1-350


Impl

icat

ions

for A

sset

Man

ager

s –

Reg

iste

red

Fund

s

Ext

erna

lizin

g co

mm

issi

ons

and

appl

icab

ility

of S

ectio

n 22

(d) o

f the

194

0 A

ct

Sec

tion

22(d

) and

Rul

e 22

d-1

appl

y w

hen

an in

term

edia

ry is

act

ing

as a

dea

ler b

ut n

ot w

hen

the

inte

rmed

iary

is

actin

g as

a b

roke

r

His

toric

ally,

som

e se

lling

agr

eem

ents

bet

wee

n fu

nd a

nd in

term

edia

ry p

rovi

de th

at in

term

edia

ry is

act

ing

as a

dea

ler

Suc

h ag

reem

ents

wou

ld h

ave

to b

e am

ende

d to

mak

e cl

ear i

nter

med

iary

is a

ctin

g as

a b

roke

r

Sch

wab

and

LP

L no

-act

ion

lette

rs p

rovi

de s

ome

guid

ance

on

whe

n an

inte

rmed

iary

is a

ctin

g as

a b

roke

r.

Rec

ent C

apita

l Gro

up N

o-A

ctio

n Le

tter p

erm

its e

xter

naliz

ed c

omm

issi

ons

on c

lean

sha

re c

lass

es (n

o fro

nt-e

nd

sale

s lo

ad, d

efer

red

sale

s ch

arge

s or

oth

er a

sset

-bas

ed fe

e fo

r sal

es o

r dis

tribu

tion)

Fron

t-end

load

wai

ver m

ust b

e di

sclo

sed

in th

e fu

nd’s

pro

spec

tus

in a

ccor

danc

e w

ith S

ectio

n 22

(d) o

f the

194

0

Act

and

Rul

e 22

d-1

ther

eund

er

All

inte

rmed

iary

-spe

cific

sal

es lo

ad w

aive

rs m

ust b

e di

sclo

sed

in th

e pr

ospe

ctus

in a

ccor

danc

e w

ith R

ule

22d-

1

Rec

ent S

EC

gui

danc

e pe

rmits

use

of a

n ap

pend

ix to

the

pros

pect

us fo

r pur

pose

s of

dis

clos

ing

inte

rmed

iary

-

spec

ific

sale

s lo

ad v

aria

tions

(IM

Gui

danc

e U

pdat

e N

o. 2

016-

06)

Sha

re c

lass

exc

hang

es

Inte

rmed

iarie

s co

nsid

erin

g fro

nt-e

nd lo

ad w

aive

rs o

n in

term

edia

ry-im

plem

ente

d ex

chan

ges

from

Cla

ss C

shar

es to

Cla

ss A

sha

res

of th

e sa

me

fund

33

1-351


Impl

icat

ions

for A

sset

Man

ager

s –

Priv

ate

Fund

s

For m

anag

ers

of h

edge

fund

s, p

rivat

e eq

uity

fund

s an

d ot

her p

rivat

e fu

nds,

the

prim

ary

conc

ern

is w

heth

er m

arke

ting

one’

s ow

n fu

nds

and

inve

stm

ent m

anag

emen

t se

rvic

es c

ould

be

cons

ider

ed to

invo

lve

the

prov

isio

n of

inve

stm

ent a

dvic

e, m

akin

g th

e m

anag

er a

fidu

ciar

yC

onun

drum

–th

e m

anag

er w

ould

then

be

unab

le to

act

in it

s ow

n in

tere

st in

mar

ketin

g its

pro

duct

s or

eve

n ne

gotia

ting

its o

wn

fees

, reg

ardl

ess

of w

heth

er th

e pr

ivat

e fu

nd

hold

s “p

lan

asse

ts”

Man

ager

’s fi

nanc

ial i

nter

est i

n ea

rnin

g fe

e-ba

sed

com

pens

atio

n fro

m th

e he

dge

fund

or P

E fu

nd u

pon

bein

g en

gage

d re

sults

in a

con

flict

that

wou

ld it

self

requ

ire

exem

ptiv

e re

lief

Pla

cem

ent a

gent

s –

pres

umab

ly a

re th

e ag

ents

of th

e fu

nd m

anag

er, a

nd m

ay m

ake

the

fund

man

ager

a fi

duci

ary

thro

ugh

thei

r sal

es a

ctiv

ityO

pen

ques

tion:

Are

pla

cem

ent a

gent

s fid

ucia

ries

or is

the

“gen

eral

co

mm

unic

atio

ns” e

xclu

sion

ava

ilabl

e to

them

in th

e ab

senc

e of

the

Inde

pend

ent

Fidu

ciar

y E

xcep

tion?

Fina

ncia

l ins

titut

ions

that

pro

vide

“pla

tform

” of h

edge

and

PE

and

oth

er p

rivat

e fu

nds

–ho

w c

an th

e cu

rren

t com

pens

atio

n st

ruct

ures

be

adap

ted?

34

1-352


Impl

icat

ions

for A

sset

Man

ager

s –

Priv

ate

Fund

s

Use

the

Inde

pend

ent F

iduc

iary

Exc

eptio

n fo

r pla

ns re

pres

ente

d by

sop

hist

icat

ed

inde

pend

ent f

iduc

iarie

s:

Rec

omm

enda

tions

to m

ost E

RIS

A pl

ans

inve

stin

g in

hed

ge fu

nds

or p

rivat

e eq

uity

fund

s sh

ould

be

cove

red

Blu

eprin

t in

the

final

regu

latio

ns -

new

set

of w

ritte

n re

pres

enta

tions

in s

ubsc

riptio

n do

cum

ents

IRA

s ar

e a

diffe

rent

mat

ter:

Mos

t IR

As,

eve

n la

rge

ones

, are

not

repr

esen

ted

by a

n in

depe

nden

t inv

estm

ent

prof

essi

onal

, mak

ing

the

selle

r’s e

xcep

tion

unav

aila

ble

(IRA

owne

r won

’t qu

alify

)W

hile

alte

rnat

ive

inve

stm

ents

cou

ld b

e of

fere

d un

der t

he B

IC E

xem

ptio

n, th

e co

nditi

ons

of

that

exe

mpt

ion

are

impr

actic

al in

the

priv

ate

inve

stm

ent f

und

cont

ext

Pos

sibl

e ap

proa

ches

, sho

rt of

the

BIC

:A

ccep

t onl

y IR

As

that

can

sho

w th

ey a

re a

dvis

ed b

y a

qual

ifyin

g in

depe

nden

t fid

ucia

ry –

grow

th o

f a n

ew c

lass

of a

dvis

ers?

Acc

ept o

nly

IRA

s if

ther

e ar

e no

com

mun

icat

ions

with

the

owne

r oth

er th

an th

e pr

ovis

ion

of o

fferin

g do

cum

ents

–no

“rec

omm

enda

tions

” -lik

ely

not f

easi

ble

Exc

lude

IRA

s, o

ther

than

thos

e of

prin

cipa

ls a

nd e

mpl

oyee

s of

the

man

ager

35

1-353


Impl

emen

tatio

n D

ates

3636

1-354


Tim

ing

for I

mpl

emen

tatio

n of

the

Fina

l Rul

e an

d E

xem

ptio

nsTh

e fin

al fi

duci

ary

rule

is e

ffect

ive

June

7, 2

016,

and

will

beco

me

appl

icab

le

for t

rans

actio

ns b

egin

ning

Apr

il 10

, 201

7Th

e B

IC E

xem

ptio

n an

d P

rinci

pal T

rans

actio

n E

xem

ptio

n ar

e al

so a

pplic

able

fo

r tra

nsac

tions

beg

inni

ng A

pril

10, 2

017

Dur

ing

the

perio

d A

pril

10, 2

017

to J

anua

ry 1

, 201

8, fi

nanc

ial i

nstit

utio

ns a

nd

advi

sers

mus

t:A

dher

e to

the

“Impa

rtial

Con

duct

” sta

ndar

ds

Pro

vide

not

ice

that

ack

now

ledg

es fi

duci

ary

stat

us a

nd d

escr

ibes

mat

eria

l con

flict

s D

esig

nate

a m

onito

r for

com

plia

nce

with

con

flict

of i

nter

est a

nd im

parti

al c

ondu

ct

issu

esA

ll ot

her c

ondi

tions

of t

he e

xem

ptio

ns w

ill ap

ply

in J

anua

ry 2

018

37

1-355


Rec

ent J

udic

ial A

ffirm

atio

n of

the

Rul

e

3838

1-356


Rec

ent J

udic

ial A

ffirm

atio

n of

the

Rul

e

On

Nov

embe

r 4, 2

016,

the

U.S

. Dis

trict

Cou

rt fo

r the

Dis

trict

of C

olum

bia

uphe

ld th

e Fi

nal R

egul

atio

ns in

an

actio

n br

ough

t by

the

Nat

iona

l Ass

ocia

tion

of F

ixed

Ann

uitie

s (N

AFA

) und

er th

e A

dmin

istra

tive

Pro

cedu

res

Act

and

the

Reg

ulat

ory

Flex

ibilit

y A

ct,

hold

ing

that

the

DO

L fo

llow

ed th

e ne

cess

ary

proc

edur

es a

nd d

id n

ot e

xcee

d its

au

thor

ity in

issu

ing

the

rule

On

Nov

embe

r 28,

201

6, th

e U

.S. D

istri

ct C

ourt

for t

he D

istri

ct o

f Kan

sas

uphe

ld

the

final

rule

on

sim

ilar g

roun

dsS

epar

atel

y, th

e U

.S. D

istri

ct C

ourt

for t

he N

orth

ern

Dis

trict

of T

exas

hea

rd o

ral

argu

men

ts o

n N

ovem

ber 1

7, 2

016

from

bot

h th

e D

OL

and

coun

sel t

o ni

ne p

lain

tiffs

in

thre

e la

wsu

its c

halle

ngin

g th

e fin

al ru

le

Som

e ex

perts

bel

ieve

that

the

case

cou

ld h

inge

on

Firs

t Am

endm

ent g

roun

ds

39

1-357


Em

ergi

ng Is

sues

and

Tre

nds

4040

1-358


Em

ergi

ng Is

sues

Del

ay o

f the

fina

l rul

e (a

s of

Jan

uary

201

7)O

n Ja

nuar

y 20

, the

Whi

te H

ouse

Chi

ef o

f Sta

ff se

nt a

mem

o to

all

fede

ral

agen

cies

hal

ting

furth

er c

onsi

dera

tion

of p

endi

ng re

gula

tions

that

hav

e no

t tak

en

effe

ct.

App

licat

ion

to d

elay

the

DO

L fid

ucia

ry ru

le is

in q

uest

ion,

as

the

fiduc

iary

ru

le, w

hile

“effe

ctiv

e,” i

s no

t yet

“app

licab

le.”

Del

ay m

ay re

quire

not

ice

and

com

men

t.O

n Ja

nuar

y 6,

201

7, a

bill

was

intro

duce

d th

at w

ould

del

ay th

e fin

al ru

le fo

r tw

o ye

ars

If fin

al ru

le is

del

ayed

, con

sequ

ence

s of

bei

ng in

“lim

bo”

Avai

labi

lity

of In

depe

nden

t Fid

ucia

ry E

xcep

tion

whe

re p

rodu

ct m

anuf

actu

rer

prov

ides

mod

el p

ortfo

lio s

ervi

ces

to in

term

edia

ries

Impa

ct o

f rec

eivi

ng a

fee

or o

ther

com

pens

atio

n by

per

son

rely

ing

on th

e ex

cept

ion

(and

que

stio

n as

to w

ho is

pay

ing

the

fee)

Sha

re c

lass

issu

es (n

ew c

lass

es, T

sha

res,

exc

hang

es)

Hel

d at

fund

acc

ount

s

41

1-359


Que

stio

ns &

Ans

wer

s

42

1-360


NOTES

1-361


NOTES

1-362

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