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InfoSight Highlight: Broker-Dealers
Friday, June 23, 2017 7:15 AM

Note: The Department of Labor (DOL) recently issued its final regulation known as the “Fiduciary Rule,” resulting in updates to this InfoSight channel. Below is a portion of the updated section.

Fiduciary Rule
The Department of Labor (DOL) issued its final regulation known as the “Fiduciary Rule,” which expands the definition of “fiduciary” of an employee benefit plan under the Employee Retirement Income Security Act (ERISA) and a plan (including an individual retirement account [IRA]) under the Internal Revenue Code of 1986 (IRC).

How does the Fiduciary Rule affect credit unions?
Credit unions that offer IRA accounts and/or refer members to a broker-dealer will need to ensure they are complying with the proper exemptions or refrain from certain activities.

A few basics to the Fiduciary Rule are:

  1. The Fiduciary Rule is generally limited to investment advice concerning IRAs and ERIS-covered retirement plans.
  2. A person is an investment advice fiduciary if a person provides “investment advice” to a plan, plan fiduciary, plan participant or beneficiary, IRA, or IRA owner for a fee or other compensation, directly or indirectly.
  3. “Investment advice” is defined as a “recommendation” with respect to funds of a plan or IRA for a fee or other compensation, direct or indirect. Credit unions should determine if their employees:
    1. Make “recommendations” regarding investments (e.g., buying, holding, selling, or exchanging securities or other investment property) or the management of investments (e.g., rollovers, transfers, or distributions from a plan or IRA); and
    2. Receive direct or indirect fees or other compensation in connection with the transaction or service. The fee or compensation must be paid "in connection with or as a result of" the transaction or service (e.g., commission or bonus, as opposed to a base salary that would be paid regardless of the transaction).

If both requirements shown in bullet points “a” and “b” above are triggered, the Fiduciary Rule would apply. Credit unions that refer members to a broker-dealer should also be sure the provider is compliant with the rule.

Credit unions should also refer to their legal counsel on any further guidance if there are concerns about coverage.

Additionally, this statement was added to the IRA Summary, the Traditional IRA, Roth IRA and Coverdell ESA pages of the Accounts channel:

Broker-Dealers
Due to the recently expanded definition of “fiduciary,” credit unions that offer IRA accounts and/or refer members to a broker-dealer will need to ensure they are complying with the proper exemptions or refrain from certain activities. See the Broker-Dealer topic for more information and to see if the rule will apply.

Source:  InfoSight Compliance.

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