'Game Changer' Part II: A Fourth Standard of Care

By NAPA Net Staff • 4/27/2015 • 0 Comments
There are three standards of care applicable today to interactions between financial advisors and their clients — and the DOL’s conflict-of-interest proposal stands to add a fourth.

In addition to the so-called “suitability” standard, the common law fiduciary standard and ERISA’s fiduciary standard, the “best interest contract” (BIC) prohibited transaction exemption (PTE) in the DOL’s proposal would add a fourth standard of care that applies only to those using the BIC PTE or those other PTEs which are part of the proposal and share the BIC’s “best interest” standard of care.  

There is no official name yet for this new type of fiduciary, but industry insider Pete Swisher suggests that “BIC fiduciary” or “IRA fiduciary” covers it reasonably well. This BIC PTE creates a “best interest contract” standard of care that has similarities to both ERISA and common law, but is clearly different than both.

In the second of a four-part series, Swisher highlights the key differences among the four standards of care, as well as the implications of adding the fourth standard.

Swisher’s full analysis, "Game Changer, Part II, The Four Fiduciary Standards of Care,” is posted here, alongside Part I of the series, on NAPA Net's "Industry Intel" tab. Part I of this series of articles on the conflict-of-interest proposal discussed the updated regulation defining “fiduciary,” the basic structure of the proposal and some of its implications.

In the coming weeks, Part III will zero in on the BIC PTE that is the centerpiece of the DOL’s strategy for bringing ERISA-style fiduciary accountability to the IRA marketplace, while Part IV will discuss the relative merits of the DOL’s proposal as put forth by various interested parties — including the White House and the DOL. 

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