Advisor Referrals - New Fiduciary Rules

[BeanCounterBlues]

In the past I have routinely provided a list of 3 - 4 advisors, ones that I work w/, and know to have their clients' best interests at heart, when asked for a referral. I always provide a list, because ultimately it is my client's decision (not mine) as to they work with. I don't receive any compensation for the referral, I do it simply to help out people who ask.

I am a CPA, that worked for a retirement consulting firm for many years, and I currently have my own practice which consists of small tax clients, and a block of small 401k retirement plans for which I provide traditional TPA consulting services. I do not sell or recommend any product, I am strictly fee based for consulting and tax preparation services.

Probably more info than what was needed - but here are my questions / comments. I've done quite a bit of reading on the new fiduciary rules, and my understanding is I do not become a fiduciary by pointing a plan to say, American Funds, or Voya, etc. Usually I'm referred by the advisor, but that is not always the case, and I do have investment companies I prefer administratively, and would recommend (not necessarily the ones mentioned here).

However it's unclear to me if I become a fiduciary by continuing to provide referral sources for advisors. I continue to read however, that if I recommend an advisor (or group of advisors) under these new rules, that will possibly make me a fiduciary, something I absolutely want to avoid.

Does anyone have any thoughts on this latter point? Appreciate any help.

[jpod]

The only thing I feel comfortable saying is that even if you are viewed as having investment advice within the meaning of the new rule, you can't be an investment advice fiduciary unless you are deemed to be receiving a fee or other compensation, direct or indirect, in connection with the investment advice. It sure sounds like you are not (and I don't believe a reciprocal referral by an advisor you recommend is a "fee or other compensation, direct or indirect," even if it leads to a new paying client for you). Ultimately you need to get comfortable with this on your own, preferably with the advice of ERISA counsel.

[Belgarath]

Agree. Like you, we are a strictly fee-based TPA, and receive nothing from such a referral. Although I haven't digested the impact of the regulations yet, everything I've seen leads me to believe we would not be considered a fiduciary in this situation.

One thing I haven't looked at yet is a situation where we provide a list of possible advisors, and one of those advisors is chosen and recommends a fund that pays the TPA (us) some amount of Revenue Sharing (when we receive Revenue Sharing, by the way, we don't keep it in addition to our normal fees - it is used to offset those fees). Haven't yet looked to see if this might somehow throw us into a fiduciary role, but everything I've skimmed from third-party sources seems to indicate that it would not, which makes sense to me.

P.S. ASPPA is doing a webcast on this today. I signed up for the recorded version so I could review at my convenience, so it won't be available to me until next week. But anyone who is interested in the webcast today should check ASPPA's website.

[BeanCounterBlues]

Thank you both for your thoughtful responses. I had also thought of the reciprocal referral situation, which does happen. And, like Belgarath, I receive revenue sharing, but don't keep it (always offset it against whatever the consulting bill is). That aspect also made me a bit concerned. I agree we all have to come to our own conclusions; it was good to get the temperature on this from other professionals who have the same concerns. Thank you again for your replies.

[SwimmingInBowelsOfERISA]

The new fiduciary rule is still being deciphered, even now. It is lengthy and although a bit "watered down" from the OMB, there appears to be a somewhat blanket presumption of advice under ERISA.

Under the old rules it is not likely possible you could be considered rendering investment advice or any other advice that would qualify you as an ERISA fiduciary. However, given the nature of a presumption of advice given (and a tightening on the 5-part investment advice exemption) I would be extraordinarily cautious about even mentioning investments.

With regards to recommending advisors, the final regulation defines “recommendation” as “a communication that, based on its content, context and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action. It further clarifies that a "recommendation" will include the recommendation of other persons who provide advice or investment management services, but it will not include the marketing of oneself or one’s services. So on the surface, it SEEMS that this could trigger advice.

I am an advisor (RIA) and while I enjoy the fruits of business from reciprocal referrals, I also recognize that this could put in jeopardy those referrals, at least those coming from my TPA/CPA partners. With that being said, time will tell how the DOL opines on the law. If I were you, I would just keep my eyes and ears open over the coming months. Of course this may all be moot if the GOP wins out and gets reversed by Congress.