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Thomas M. Geier, CPA, CFP®, PFS

Back in 1974, Congress passed the Employee Retirement Income Security Act. (ERISA). The goal of this legislation was to protect the interests of employees and their beneficiaries regarding employee benefit plans by setting minimum standards and rules. Although initially focused mainly on pension and health plans, ERISA has expanded with the times to include 401k plans and other newer employer sponsored plans. Some examples of the minimum standards set by ERISA are rules for who is eligible to participate in plans, vesting schedules, and how investment options must be diversified.

erisa and 401kCongress put the US Department of Labor in charge of ERISA and the DOL has updated and issued new rules and regulations to meet the ever changing employee benefits landscape. Recently, the DOL issued a new ruling on how financial advisors must interact with any clients involving employee retirement benefits. This new rule will deem any financial advisor that gives investment advice for an ERISA covered vehicle to be a “fiduciary”. This can include brokers, registered investment advisors, and insurance agents.

Importance of a Fiduciary

Why is the term ‘fiduciary” important? In effect, if someone is your fiduciary, they are always acting in your best interests. They put your financial interest above their own. While most financial advisors already act with the best intentions of their clients, the issue gets a little gray when conflicts of interest are concerned. For example, an advisor may work for a firm that offers its own internal investment products. At what point should the advisor disclose to you the various costs and compensation differences between those of their internal products versus those that can be obtained elsewhere?

The fiduciary distinction really has its best protections for when things go wrong. All Registered Investment Advisors are regulated by the SEC and are already considered fiduciaries. They must disclose any and all conflicts or interests. However, most brokers, insurance agents, and other financial consultants are not considered fiduciaries. However, under this new DOL rule, they will be. If something goes wrong with your employee benefit plan assets, a fiduciary can be held personally liable to restore any losses to the plan if it is found that they operated improperly. Courts can also take whatever action is appropriate, including removal, for any plan fiduciary who breaches their responsibilities.

The New Department of Labor Rule

The new rule will require that ANY advisor who gives you advice regarding your ERISA covered employee benefit plan be considered a fiduciary, and must disclose any conflicts of interest. This will include agents who sell annuities that retirement funds are moved into and anyone who helps transact a rollover from your 401k to an IRA.

Most people work with advisors they already trust and, therefore, will see little or no impact from the new rule. However, it is good to know that the increased protections are in place to prevent problems from happening and various legal remedies are available if the worst does occur.

The new DOL rule does not go fully into effect until January 1, 2018. Some of the provisions are phased in to give everyone the ability to understand the provisions and comply.

Choose Geier Asset Management as Your Investment Advisor

Our firm, Geier Asset Management, is an SEC regulated Registered Investment Advisor. We take our fiduciary responsibility very seriously. We strive to provide the best possible, objective advice designed to meet our clients goals. Our Code of Conduct and Ethics is the foundation of our relationship and will make sure any conflicts are disclosed to you in writing. We value your trust! Give us a call if you have any questions on what the new DOL ruling means to you.


© Geier Asset Management, Inc. June 2016. Thomas M. Geier is a Vice President of Geier Asset Management, Inc., a Registered Investment Advisor. The above blog reflects the opinions of Mr. Geier and not necessarily the firm. Any advice given is general in nature and investors must consider their own individual circumstances. Past performance is no indicator of future performance.