The New Fiduciary Rule’s Effect on Investment Managers

May 27, 2016

The U.S. Department of Labor's (the "DOL") new regulations re-defining an "advice fiduciary" have broad implications across the entire spectrum of the banking, insurance and financial services industries. This client alert only focuses on the new regulation's potential effects on investment managers, particularly investment managers of private funds.

After years of proposals and re-proposals, the DOL issued the final regulation (the "Rule") providing a new definition of an "advice fiduciary" under ERISA and the prohibited transaction provisions of Section 4975 of the Code. The Rule expands the scope of investment advice beyond the ordinary usage of the term and thereby expands the activities which create a fiduciary relationship with an ERISA plan or IRA to include customary arm's-length interactions. Under the old definition of investment advice, which remains effective until April 10, 2017, a person is not considered to be a fiduciary to a plan or IRA by making sales pitches to a plan or IRA or providing recommendations that do not serve as a primary basis for their investment decisions. Under the Rule, ordinary course communications and sales pitches will have to be reviewed to determine whether the activity amounts to investment advice or falls within one of the safe harbors provided in the Rule.

Investment managers will be faced with three choices with respect to IRA, small plan or self-directed plan clients and/or investors in private funds they manage:

  • stop accepting new IRA, small plan or self-directed plan clients/investors, as well as additional subscriptions from existing IRA, small plan or self-directed plan clients/investors;
  • alter marketing and client communications to fit within a safe harbor and accept the attendant interpretive risk that those communications may be fiduciary acts; or
  • rely on the BIC and adopt and implement the policies and procedures required to meet all the applicable conditions of the exemption.

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Click here to access the DOL Fiduciary Rule.


Investment Advisers