The DOL's Fiduciary Rule and Sales/Marketing Activities
The U.S. Department of Labor on April 6, 2016 released the final version of its “investment advice” regulation and accompanying prohibited transaction exemptions (collectively, the “Final Rule”), a highly-anticipated milestone that is the culmination of a long and arduous process to adopt new rules relating to the definition of “fiduciary” under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the Internal Revenue Code of 1986 (the “Code”). The Final Rule covers not only retirement plans that are subject to ERISA, but, controversially, also individual retirement accounts and certain other non-ERISA plans. Despite a good deal of controversy swirling about the Final Rule, including from within the Trump administration, the Final Rule, to the surprise of many, became effective, at least in part, as of June 9, 2017. One aspect of the Final Rule that could be of relevance to private equity sponsors, which might not be immediately obvious to some, is that the Final Rule could have adverse implications for a broad range of sales and marketing efforts, whether or not the parties doing the sales and marketing would otherwise be fiduciaries under the Final Rule. If a provider is considered to be providing "investment advice" at the sales/marketing stage, and if no exception or exemption is available, then there could at that juncture be a violation of ERISA's and the Code's prohibitions against certain self-dealing and conflicts of interest, in which case the investor (depending on the type of investor) may have remedies and excise taxes may become payable. This matter is discussed in Section IV(C) of our May 2016 OnPoint.