Inclusion of “Level-to-Level” Comp in Fiduciary Regulation a Victory for Advisors and Participants
ARLINGTON, VA – In a big win for 401(k) plan participants, plan sponsors, and advisors alike, the Labor Department’s final fiduciary regulation includes a streamlined exemption for “level-to-level” advisor compensation.
The fiduciary regulation, published in its final form today, acknowledges a special exemption for advisers and firms that receive only a “level fee” for the advice they provide in conjunction with the decision to rollover assets from an employer-sponsored plan, such as a 401(k), so long as certain conditions are met, including an acknowledgement that the recommendation is in the customer’s best interest. Level fee fiduciaries receive the same compensation regardless of the particular investments the client makes, whether based on a fixed percentage of assets under management or a fixed dollar fee.
Under the original fiduciary rule proposal, unless compensation did not increase at all when a rollover from an employer-sponsored plan to an IRA occurs (which is uncommon due to the customized services typically provided within the IRA), advisers would have only been able to help participants on the rollover if they first complied with the complex and cost-prohibitive “Best Interest Contract Exemption” (BICE). In fact, under the original proposal advisors with any investment discretion wouldn’t even have been allowed to use the BIC, and thus would have been legally prohibited with working with a participant on the rollover transaction if there was any difference in compensation between what they were paid for their work with the individual as a participant in a plan, and the IRA.
That would have effectively penalized the adviser for engaging in the rollover transaction — and would put retirement plan advisers at a competitive disadvantage vis-à-vis advisers who had no previous relationship with the participant in the plan.
This issue was raised during the comment period by the American Retirement Association, and presented in testimony during hearings conducted by the Labor Department last summer by Marcy Supovitz, then-President-Elect of the American Retirement Association.
Commenting on the inclusion, Brian Graff, CEO of the American Retirement Association, and Executive Director of the National Association of Plan Advisors (NAPA), noted “A core mission of the American Retirement Association and its sister associations is to make sure our members’ voices are heard loud and clear by lawmakers and regulators. The inclusion of NAPA’s level to level exemption in DOL’s final fiduciary rule is a testament to the tremendous effort of NAPA’s leadership and government affairs committee. Making sure that plan participants can continue their relationships with their plan advisors is a big win for NAPA and the entire retirement plan system.”
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