Skip to content

Broker-Dealer Regulation & Litigation Insights

  • About Us
  • Contributors
  • Resources
  • Presentations
  • Visit the Faegre Drinker website

Fiduciary Rules for the Transfer of IRAs

When a financial advisor moves from one broker-dealer to another, both the firm and the advisor want his or her clients to come along.  When those clients have IRAs, any recommendations to the IRA investors are now subject to greater scrutiny.  This is because, under the DOL’s new fiduciary advice rule, a recommendation to move an IRA from another firm is a fiduciary recommendation.  And while this would ordinarily be a prohibited transaction under the Internal Revenue Code – because the broker-dealer and advisor will make money if the account is transferred but won’t if it isn’t – there is an exemption that permits the recommendation and any resulting compensation, if a number of conditions are satisfied.


As a word of caution, the new world of regulated fiduciary advice means that broker-dealers need to look at everyday transactions and the recommendations their advisors make in a new way.  And it requires that they engage in a new process.  This post describes what that  means.

The exemption referred to in the first paragraph, the Best Interest Contract Exemption or BICE, says that the payment of compensation resulting from recommending the transfer of the IRA is permissible if the broker-dealer and its advisor comply with three “Impartial Conduct Standards”.  These require that:

  • They act in the “best interest” of the client, which means that the transfer recommendation is both prudent and loyal to the investor;
  • The resulting compensation is reasonable for the services provided; and
  • The broker-dealer and the advisor make no materially misleading statements in the process.

So how do you act in the best interest of the client in this situation?  While there are no specific guidelines, it means that the broker-dealer and advisor need to do a comparison between the investments, services and expenses available in the current IRA (the one at the advisor’s old firm) versus those in the new IRA (i.e., at the new firm), taking into account the needs, objectives, risk tolerance and financial circumstances of the IRA owner.  The process also needs to consider any special circumstances that require consideration of additional information.

There may be other considerations that need to be taken into account, and the ones described above are not a complete list.  But the important point is to focus on the client’s needs and make sure the firm’s (and advisor’s) financial interests take a back seat.

One more essential element of the process:  the information gathered to do this analysis, plus the analysis itself, should be documented in the new firm’s files.  That information is evidence of compliance with the requirements of the BICE prohibited transaction exemption.  The burden of proving the requirements of the exemption were satisfied falls on the broker-dealer. As a result, the documentation should be retained in a “retrievable fashion” in case of a claim that the requirements were not met.

The views expressed in this article are the views of the authors, and do not necessarily reflect the views of Drinker Biddle & Reath.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

Subscribe and Receive Alerts to New Articles

SUBSCRIBE
October 25, 2017
Written by: Fred Reish
Category: Best Interest Contract Exemption, Best Interest Standard of Care, Fiduciary, Prudence

Post navigation

Next Next post: The DOL’s Best Interest Contract Requirement: Effect on Litigation Against Broker-Dealers

Subscribe to Alerts

Recent Posts

  • Managing IRAs: Charging Different Fees for Different Investments
  • FINRA Is Conducting a Targeted Exam of “Crypto Assets”
  • Recent State Fiduciary and Best Interest Developments
  • Rollover Recommendations – Do the SEC and DOL Requirements Align?
  • Broker-Dealer Regulation & Litigation Digest – Summer 2022

Categories

  • 12b-1 Fees
  • 3270
  • 3280
  • 3290
  • Anti-Money Laundering
  • Arbitration
  • BD
  • Best Execution
  • Best Interest Contract Exemption
  • Best Interest Standard of Care
  • Business Continuity Planning
  • Churning
  • Class Certification
  • Compensation Issues
  • Compliance
  • Concurrent jurisdiction
  • Conflicts of Interest
  • Congress
  • Covered class actions
  • Covered securities
  • Credit
  • Cryptocurrencies
  • Customer Due Diligence Rule
  • Customer Protection
  • Cybersecurity
  • Dark Pools
  • Data Integrity
  • DOL Fiduciary Rule
  • Elder Abuse
  • Enforcement
  • Event Study
  • Examination
  • Exchange-Traded Funds (“ETF”)
  • exemptions
  • Fair Pricing
  • Fees
  • Fiduciary
  • Fiduciary Duty
  • Financial Services
  • FinCEN
  • FINRA
  • FINRA 2018 Annual Regulatory and Examination Priorities Letter
  • FINRA 360
  • FINRA Code of Arbitration Procedure 12204
  • FINRA Code of Arbitration Procedure 13204
  • FINRA Notice 13-45
  • FINRA Regulatory Notice 16-25
  • FINRA Rule 12200
  • FINRA Rule 13200
  • FINRA Rule 2111
  • FINRA Rule 2165
  • FINRA Rule 2232
  • FINRA Rule 3310(c)
  • FINRA Rule 4210
  • FINRA Rule 4512
  • FINRA Summary Report
  • Fixed Income
  • Fraud
  • Goldman v. City of Reno, 747 F.3d 733(2014)
  • Goldman v. Golden Empire Schools Financing, 767 F.3d 210(2014)
  • IA
  • Impartial Conduct Standards
  • In the Matter of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Respondent (AWC 2009020188101/January 25, 2012)
  • Initial Coin Offerings
  • Investment Recommendation
  • Investor
  • IRA
  • Liquidity
  • Manipulation
  • Margin
  • Market Access
  • Market Access Controls
  • Mortgage
  • Mutual Funds
  • New FINRA Rule
  • OCIE
  • Office of the Solicitor General
  • Options
  • Outside Activities
  • Outside Business Activities (“OBA”)
  • Policies and Procedures
  • Price Impact
  • Private Securities Transactions (“PST”)
  • Private Securities Transactions of an Associated Person”
  • Prohibited Transactions
  • Prudence
  • Quantitative Suitability
  • Reading Health v. JP Morgan, No. 16-4234 (3d Cir. Aug. 7, 2018)
  • Reasonable Fees
  • Recommendation
  • Regulation Best Interest
  • Regulation SHO
  • Regulatory Notice 18-13
  • Retirement Account
  • Risk
  • Rollovers
  • SEC
  • SEC 2018 National Exam Program Examination Priorities
  • SEC Reg BI
  • SEC RIA Interpretation
  • Securities Act of 1933
  • Securities Class Action
  • Securities Litigation Uniform Standards Act of 1998 (SLUSA)
  • Senior Safe Act
  • Seniors
  • Service Providers
  • Short Sales
  • Suitability
  • supervision
  • Supreme Court
  • Surveillance
  • Technology Governance
  • UBS v. Carilion Clinic, 706 F.3d 319(2013)
  • Uncategorized
  • Unit Investment Trusts (“UIT”)
  • Verification of Assets and Liabilities

archives

  • 2023
    • January 2023
  • 2022
    • December 2022
    • November 2022
    • October 2022
    • September 2022
    • August 2022
    • July 2022
    • May 2022
    • April 2022
    • March 2022
    • February 2022
    • January 2022
  • 2021
    • December 2021
    • November 2021
    • October 2021
    • August 2021
    • July 2021
    • May 2021
    • April 2021
    • March 2021
    • February 2021
    • January 2021
  • 2020
    • December 2020
    • November 2020
    • October 2020
    • September 2020
    • August 2020
    • July 2020
    • June 2020
    • May 2020
    • April 2020
    • March 2020
    • February 2020
    • January 2020
  • 2019
    • December 2019
    • November 2019
    • October 2019
    • September 2019
    • August 2019
    • July 2019
    • June 2019
    • May 2019
    • April 2019
    • March 2019
    • February 2019
    • January 2019
  • 2018
    • December 2018
    • October 2018
    • September 2018
    • August 2018
    • July 2018
    • June 2018
    • May 2018
    • April 2018
    • March 2018
    • February 2018
    • January 2018
  • 2017
    • December 2017
    • November 2017
    • October 2017
  • About Us
  • Contributors
  • Resources
  • Presentations
  • Visit the Faegre Drinker website

© 2023 Faegre Drinker Biddle & Reath LLP. All Rights Reserved. Lawyer Advertising.
Privacy Policy

We use cookies to improve your experience with our website. By browsing our site, you are agreeing to the use of cookies. For more information about how we use cookies, please review our privacy policy and cookie policy. OK
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.
Non-necessary
Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies. It is mandatory to procure user consent prior to running these cookies on your website.
SAVE & ACCEPT