Old and New News

Submitted by Keith Loveland - Professional Issues Committee

OLD NEWS. The previous definition of a fiduciary was the four decades‐old five‐part test for determining functional fiduciary status under ERISA. A fiduciary was defined as a person who does not have discretionary authority over plan assets and who, for compensation

  1. Renders advice as to the value of securities or other property;
  2. On a regular basis;
  3. Pursuant to a mutual agreement;
  4. The advice serves as the primary basis for investment decisions; and
  5. The advice is individualized.

All five prongs of the test had to be met to be deemed an investment fiduciary.

The final rule removed the “regular” and “primary basis” prongs (nos. 2 and 4) from the definition and thereby expanded the advisory activities and persons subject to the fiduciary definition. Persons who represent themselves as ERISA fiduciaries and who provide investment advice for compensation are also held to the fiduciary standard under ERISA.

NEW NEWS. The U.S. Department of Labor has delayed the applicability date of their ‘fiduciary’ rule from April 10th to June 9, 2017. From June 9, 2017 to January 1, 2018, anyone wishing to use the BICE, the Class Exemption for Principal Transactions or Prohibited Transaction Exemption 84-24, need only comply with the Impartial Conduct Standards (“best interest” standard of care, reasonable compensation and not making any materially misleading statements).  Compliance with all other conditions of these exemptions, including written disclosures and representations, are waived until January 1, 2018. [Have you ever wondered why “Best Interest” has quotes around those words?]

OLD NEWS. As the state’s consumer protection agency, the Minnesota Department of Commerce has proposed legislation to collaborate with the state’s financial institutions and professionals to help protect vulnerable and older adults against financial abuse.

The Minnesota Safe Seniors Financial Protection Act closely follows a model act approved by the member states of the North American Securities Administrators Association (NASAA), the association which has Commerce Commissioner Mike Rothman as President.

NEW NEWS. The SEC has approved the adoption of new FINRA Rule 2165 (Financial Exploitation of Specified Adults) to permit member firms to place temporary holds on disbursements of funds and securities from the accounts of specified adults where there is a reasonable belief of financial exploitation of these customers. Effective date February 5, 2018.

OLD AND NEW NEWS. The Minnesota Department of Commerce, the SEC, and FINRA have ALL identified cybersecurity programs as ‘top priorities’ for broker-dealer and investment adviser registrants for several years. Cybersecurity programs must become an action item and top priority for all of us, in my opinion. The risks are simply too great to ignore.