The Department of Labor has recently redefined the rules about who qualifies as a fiduciary to a retirement plan, and what the responsibilities are of the fiduciary. The two main goals of the DOL’s redefinition of fiduciary are 1: For IRA account providers who sell assets to their clients’ plans to be categorized as fiduciaries of those plans, and 2. For fiduciaries who sell securities or assets to their clients’ plans to have extra disclosures about their fees.
This new regulation means providers like banks and brokerage houses cannot sell securities to their clients’ plans based on commission, unless they follow the DOL’s regulations for fiduciaries. A fiduciary must prioritize making wise decisions for the account. Sales for the provider must come secondary to the best interest of the account’s prosperity.
Since this change, some lenders think that the DOL’s new fiduciary rules only apply to account providers who sell securities. However, the DOL’s rules apply to any asset. IRA account holders need to know how this new definition affects them and their providers.
In order for lenders to position themselves as a non-fiduciary for both their IRA and non-IRA investors, they may want to consider the function(s) they perform for their customers. For instance, if a lender maintains a cash position for their investors, does this mean they are in control of that customer’s funds? Consequently, would this position trigger a fiduciary responsibility?
For now, all lenders have to work off of is the DOL’s legislation itself. Future court rulings or further explanation from the DOL may make it easier for lenders to discern whether or not they fall into the category of a fiduciary for their clients. In the meantime, lenders may want to consult their financial professional to better understand their responsibilities under the DOL’s new definition of fiduciary. Learn more about New Direction's methods of due diligence as an IRA provider here.