Independent registered advisory firms — fiduciaries before theObama-era Labor Department expanded the definition of fiduciary advice — are predicted to see a surgein demand under the conflict-of-interest rule, according to mostindustry insiders and independent analysts.

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While they won’t be exposed to the rule’s more onerouscontractual requirements, RIAs are not completely off the hook incomplying with rule, according to a clientalert from attorneys at Drinker Biddle.

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In fact, come 11:59 p.m. EDT this Friday, the end of day on June9, when all regulated entities will have to begin operating underthe rule’s impartial conduct standards, evenadvisors long beholden to a fiduciary standard will beaffected.

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In one sense, the impartial conduct standards encapsulate theintent and spirit of the fiduciary rule without applying all of itsred tape.

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Under the requirement, advisors on qualified retirement accountsand plans will have to give advice that is in clients’ best interest, only receive reasonable fees orcompensation, and be prohibited from making misleadingstatements.

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Related: What plan sponsors need to know now aboutthe fiduciary rule

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But in another sense, the standards create new oversight anddocumentation requirements and potential new liability, even forthose advisors that were previously regulated as fiduciaries,according to a Drinker Biddle client alert that lays out the June9th’s implications for non-affiliated RIA firms.

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For firms advising 401(k) sponsors and plan participants, nottoo much will change, the alert says.

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But advice on plan distributions or rollovers to IRAs will “usually result in aprohibited transaction because the RIA will receive additionalcompensation,” says the alert, which was co-authored by FredReish.

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In such cases, RIAs will have to rely on a new prohibitedtransaction exemption—the so-called Transition BICE, a streamlinedversion of the rule’s Best Interest Contract Exemption.

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In order to satisfy the best interest requirement under theimpartial conduct standards, advisors will have to consider “allrelevant factors” for justifying a recommendation to rolloverassets, including comparing investments and fees between thesponsored plans and IRAs.

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Technically, a full comparative analysis is not required underthe rule until January 2018.

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But Reish and his team recommend RIAs take a more proactiveapproach to monitoring and documenting advice on rollovers. Whilethe Labor Department has indicated more than once that it will notbe pursuing enforcement against firms making a good faith effort tocomply with the rule during the transition period, plaintiffs’attorneys are under no such obligation.

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“Although not required until January 1, 2018, we recommend thatRIAs follow the basic process required under BICE Lite to documentwhy the rollover is in the investor’s best interest,” the alertsays. “Firms should consider developing written materials to assistIARs in making these determinations, and maintaining thatdocumentation.”

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In an email, Reish said RIAs will have to operate under theimpartial conduct standards without precise clarity on how the bestinterest standard will be enforced between June 9 and the finalJanuary 1, 2018 compliance date.

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In recommending distributions from 401(k) plans, advisors arebeholden to the Employee Retirement Income Security Act’s prudentman rule, which requires considerations relevant to an investor’sspecific situation.

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“It is difficult to imagine that doesn’t require, at the least,a consideration of investments, services, and costs in the plan,the investments, services and costs in the rollover IRA, and theneeds and the circumstances of the participant,” ReishtoldBenefitsPPRO.

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Under the impartial conduct standards, a recommendation to rollover plan assets to an IRA will be a prohibited transaction, andwill require use of the Best Interest Contract Exemption, saidReish.

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“That requires the adviser to adhere to the best intereststandard of care, among other things,” he said. “That standard is,at its essence, a combination of ERISA’s prudent man rule and dutyof loyalty. In other words, it requires the same considerations asthe fiduciary recommendation to take a distribution.”

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IRA-to-IRA transfers and advice on managing investments

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RIAs will also have to abide by the impartial conduct standardswhen recommending a client move IRA assets from one firm to theirown, as it would result in new compensation for the advisor. The alert says the process forjustifying when the recommendation is in the client’s best interestwill be similar to the process used for plan-to-IRA rollovers.

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RIAs will also engage in a prohibited transaction when theycharge different fees on different investment products. When an RIAapplies full discretion in managing assets and allocatinginvestments, they will have to use the full BIC Exemption in orderto assure the impartial conduct standards are satisfied, the alertsays.

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The alert also recommends third-party benchmarking services toassure fees satisfy reasonable compensation requirements.

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If an RIA merely recommends an investment strategy, and leavesthe ultimate management decisions to clients, then firms can applythe less stringent Transition BICE.

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One way to sidestep entanglements with any version of the BICExemption is to level fees across asset classes by charging ablended fee, the alert says.

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For advice on IRAs, that strategy would avoid a prohibitedtransaction, meaning the impartial conduct standards will notapply. “However, the RIA will still be subject to the fiduciaryobligations under the Advisers Act,” the alert says.

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Related: See more articles at the BenefitsPRO FiduciaryRule page

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.