The state of fiduciary regulations: a Regulatory Action Program update

Summary
The pounding footsteps of the army of fiduciary regulation is now being felt by product providers, advisors, plan sponsors; plan participants and investors at a multitude of levels. It is clear that the regulatory establishment has concluded that mandating a fiduciary environment is the way to cure all that ails the financial community. While plagued by delays and false steps, each new regulation that materializes, pulls more of the market into fiduciary waters.

Industry participants are faced with the challenge of avoiding the fiduciary waters, holding on to a life preserver or learning to navigate.

The Regulatory Action Program (RAP) program is designed to craft solutions to address the onslaught of fiduciary regulations that preserves revenues without excessive cost or undue risk to the business. RAP solutions are tailored to the business mix, risk tolerance and budgets of clients and take advantage of an arsenal of materials and programs that are available. RAP is focused on dealing with the regulations that have been finalized, while keeping a steady eye on those that are still forthcoming.

Finalized Regulations Requiring Current Action

Fee Disclosure for 401(k) plans
(Effective 7/1/2012) Threatens to lower compensation, increase risk and force price competition in the 401(k) market. The regulation requires that fiduciary status is acknowledged in writing if investment advice is rendered.

FINRA Arbitration cases involve claims of fiduciary breach
(Currently in effect) In spite of regulations to the contrary, RRs are already being held to a fiduciary standard in the arbitration process. Arbitration affects all business.

Advice to IRAs & 401(k) plans
(Effective 12/27/2011) Permits continuation of compensation structure and client relationship with no fiduciary exposure, as an alternative to regulations that force current business into fiduciary relationships.

This exemption may be applied to business with all IRA and 401(k) and similar plans.

Forthcoming regulations
Five part test of fiduciary status with IRAs & 401(k)
(Planned for 2012) Unless the above exemption is taken, investment advice to IRA or 401(k) and similar plans become fiduciary acts, regardless of client agreements to the contrary.

Preferential treatment of annuities in 401(k) plans
(Planned for 2012) Captures "rollover" before assets leave the plan and will require annuity expertise for 401(k) plans.

Future regulations

Dodd-Frank Harmonization of RIA & RRs
(Estimated for 2015) Calls for stricter regulation of fiduciaries (RIAs) and identical standards for current non-fiduciaries (RRs).

RAP Services
Contact the RAP team for more in-depth insight into these regulations and solutions being adopted to deal with them at 212-431-6666.

For more than three decades, Carpenter Group has helped financial services organizations grow their businesses and improve profitability through objective business advice, branding and marketing solutions, and creative services. Carpenter Group brings together seasoned professionals from the financial services, branding and creative industries to develop and implement solutions that drive business goals forward.

Our clients include many of the most prominent firms in the asset management, investment banking, insurance, brokerage and commercial banking sectors.

Carpenter Group
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