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As the first implementation date of April 2017 draws near for the DOL Fiduciary rule, the agency released the first round of FAQs. CUNA expects the DOL to release additional FAQs over the next few months.
One applicable FAQ addresses the BICE Exemption for Bank Networking Arrangements. We believe this could be applicable to credit union relationships with credit union services organizations (CUSO).
The document states,
Section II(i) of the BIC Exemption provides conditions applicable to advisers who are bank employees, and financial institutions that are banks or similar financial institutions or savings associations, who receive compensation pursuant to a “bank networking arrangement.” As defined in the BIC Exemption, bank networking arrangements involve the referral by banks and their employees to non-affiliates who are providers of retail non-deposit investment products, in accordance with applicable banking, securities and insurance regulations.
Q20. The BIC Exemption provisions regarding Bank Networking Arrangements address referrals by banks and bank employees only to non-affiliated financial institutions such as registered investment advisers, insurance companies or broker dealers. Why isn’t relief provided for referrals to affiliates?
Under the Rule, a recommendation of other persons to provide investment advice or investment management services constitutes fiduciary investment advice, and receipt of compensation as a result of such advice is a prohibited transaction requiring compliance with an exemption. In contrast, marketing oneself or an affiliate (when it is disclosed as such), without otherwise making an investment recommendation covered by the Rule, does not constitute investment advice that may result in a prohibited transaction. Referrals to affiliates who are providers of retail non-deposit investment products therefore generally would not be considered fiduciary investment advice giving rise to a prohibited transaction for which an exemption is required.
This FAQ appears to provide guidance that when a credit union offers marketing materials for a CUSO, this would likely not cause fiduciary status. It also appears to further clarify that referrals to CUSOs, without specific recommendations, would also not cause fiduciary status. While this provides additional clarification, credit union employees receiving compensation for a specific recommendation or referral such as an IRA, should still review the rule for applicability.
CUNA was the only credit union trade association to file a comment letter and a follow-up letter outlining concerns about how the DOL fiduciary rule could impact credit unions and CUSOs. CUNA was pleased that the DOL addressed some of its questions, and provided clarifications about what activities are considered education v. advice in the final rule. Specifically, CUNA expressed concerns that in the definition in the proposed rule of “education” and the “education carve-out” were overly broad.
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