DOL Proposes 60-day Fiduciary Rule Delay

The Department of Labor released a proposed rule to extend the applicability date of its fiduciary rule under ERISA.  The proposal includes a 15-day comment period and would extend the rule’s April 10 compliance date to June. 9.

Fred Reish, partner in Drinker Biddle & Reath’s employee benefits and executive compensation practice group in Los Angeles, notes that a 6-month delay had been widely expected.

“During the shortened period, the DOL will take comments for 15 days on whether the proposed rule should be finalized and will take comments for 45 days on a list of questions about the impact of the fiduciary regulation and the exemptions,” Reish explains.

After the comments are received and reviewed, Labor will then issue a final rule extending the applicability date to June 9, Reish adds. “Once drafted, it will be sent to the Office of Management and Budget for another review. The goal is obviously to get the final rule on the extension of the applicability date approved and published by April 10. We expect that to happen at the end of March or early April.”

My take on this – once again another unclear message from the Department of Labor regarding the April 10th applicability date.

 

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Standing LOAs as Custody – additional information

The No-Action Letter discussed in yesterday’s blog contains seven conditions that, if met, would allow an adviser to escape the need for a surprise exam:

1. The client provides an instruction to the qualified custodian, in writing, that includes the client’s signature, the third party’s name, and either the third party’s address or the third party’s account number at a custodian to which the transfer should be directed.
2. The client authorizes the investment adviser, in writing, either on the qualified custodian’s form or separately, to direct transfers to the third party either on a specified schedule or from time to time.
3. The client’s qualified custodian performs appropriate verification of the instruction, such as a signature review or other method to verify the client’s authorization, and provides a transfer of funds notice to the client promptly after each transfer.
4. The client has the ability to terminate or change the instruction to the client’s qualified custodian.
5. The investment adviser has no authority or ability to designate or change the identity of the third party, the address, or any other information about the third party contained in the client’s instruction.
6. The investment adviser maintains records showing that the third party is not a related party of the investment adviser or located at the same address as the investment adviser.
7. The client’s qualified custodian sends the client, in writing, an initial notice confirming the instruction and an annual notice reconfirming the instruction.

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Standing LOAs Cause Advisers to Have Custody

from Cipperman Compliance Services LLC

The staff of the SEC’s Division of Investment Management, in a recent No-Action Letter, has opined that an adviser has regulatory custody of client assets where a client grants even limited authority to transfer assets to a designated third party. As a result, an adviser who has received standing letters of authorization (SLOAs) from one or more clients must report those assets in its response to Item 9 of Form ADV. The staff will allow such an adviser to dispense with the custody rule’s surprise examination requirement so long as it meets several conditions including ensuring that the third party custodian appropriately verifies the SLOA, provides transfer of funds notices to the client, and sends the client annual reconfirming notices. In companion releases, the staff also provided guidance about transferring assets between custodians and inadvertent custody arising from custodial contracts.

OUR TAKE: The IM staff continues to take a hard line with respect to its broad view of the custody rule regardless of the underlying policy arguments. The relief from the surprise audit may be cold comfort, as we expect few custodians will be willing to spend the resources and subject themselves to additional liability to accommodate SLOAs (without additional fees).

https://www.sec.gov/divisions/investment/noaction/2017/investment-adviser-association-022117-206-4.htm

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Consistency between Code of Ethics and Actual Gifts Received

from Cipperman Compliance Services

The SEC censured and fined an investment consultant and its principal $700,000 for lying about gifts received from recommended investment managers and performance information. The respondent’s marketing material claimed that neither the firm nor its principals took “so much as a nickel” from any investment manager. However, the firm’s Code of Ethics permitted gifts over $100 with pre-approval and under $100 without. The SEC asserts that personnel in the firm received tickets to the Masters Golf Tournament and other smaller gifts over a 4-year period, even where such gifts violated the Code of Ethics but the firm never imposed discipline. The SEC also accuses the firm of marketing hypothetical and back-tested performance without sufficient disclosure or backup.

OUR TAKE: Code of Ethics violations are an oft-cited SEC deficiency and should be remedied upon discovery (see Common OCIE Deficiencies). However, this firm compounded the problem by boasting about its Code of Ethics compliance in marketing materials. We do not recommend claiming 100% compliance with any rule as part of a marketing campaign.

https://www.sec.gov/litigation/admin/2017/ia-4647.pdf

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Disaster Recovery testing opportunity

Today may be an opportunity to test your Disaster Recovery Plan – especially if you live in the North East.  With the NorEaster, you, or some of your employees, may not be able to get to the office.  Or you may have closed your office.

If so, take this opportunity to test what you have done to be able to work from an alternate site.  Also, were all of your cloud applications available?

Be sure to document in your CRM what you did and what you learned.

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DOL Fiduciary NOT Yet Delayed by President Trump

from Michael Kitces

Given the party-lines debate that has revolved around the Department of Labor’s fiduciary rule for the past year – ever since President Trump put the full force and backing of the White House behind the final rule – it was widely believed that once President Trump won the presidential election, it would just be a matter of time before he issued an Executive Order to delay the rollout of the regulation this April. And yesterday morning, the White House circulated a draft version of the coming Executive Order, to be signed that afternoon, that would impose a 180-day delay to the rule.

Except as it turns out, the final version of the Memorandum that President Trump signed did not actually include a provision to delay the fiduciary rule after all, despite wide media reporting to the contrary! Instead, the Secretary of Labor was merely directed to conduct a new “economic and legal analysis” to assess whether the fiduciary rule and its looming applicability date is causing harm to investors by limiting access, triggering dislocations in the retirement services industry, or likely to cause increased litigation and increased costs for consumers. And if that is the case, then the Department of Labor would undertake yet another proposed rulemaking process, with a Notice and Comment period, before proceeding. A direct Executive Order from the President to delay, though, is off the table (though notably, many had pointed out it wouldn’t have been legally permissible to delay that way in the first place).

Given barely 2 months until the applicability date, it’s still unclear whether the new economic analysis requirement and subsequent rulemaking process will be able to successfully delay the rule, especially since President Trump’s Labor Secretary nominee Andrew Puzder hasn’t yet been confirmed, and is now reportedly being delayed indefinitely due to ongoing questions about his ethics and financial disclosures paperwork. Nonetheless, a delay is still possible, whether by inviting a stay in one of the lawsuits, going through a “hasty” rulemaking process to at least get some delay in the applicability date on the table (and then expand into further rule changes thereafter), or getting Congress to intervene (and overcoming a Senate Democrats filibuster).

But for the time being, the fact remains that it’s still “game on” for the Department of Labor’s fiduciary rule. The President’s Executive-Order-that-wasn’t may still ultimately facilitate a delay in the rule, and/or start the process of making changes to the fiduciary rule’s long-term provisions after the rule takes effect (but before any real enforcement and legal exposure kicks in). But that remains to be seen in the steps that acting Labor Secretary Ed Hugler does or doesn’t take in the coming days and weeks to quickly push the required economic analysis and the start of a new rulemaking process! At a minimum, though, it’s looking increasingly likely that the DoL fiduciary rule will be here to stay in some form… the only question is exactly what provisions last in the truly-final version, and when it will truly take full effect!

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5 ways to detect a malicious “phishing” email

from Carbonite

For as long as there’s been email, there’s been email scams. At least since the time email first started gaining widespread popularity in the 1990s, phishing scams have been showing up in email accounts. They’re called ‘phishing’ emails because the cybercriminals who send them are fishing for victims.

These fraudulent emails, which may appear to come from a legitimate company or even a personal acquaintance, are designed to trick people into giving up personal information, such as credit card and social security numbers. They may also be designed to scam unwitting victims into opening a harmful attachment or clicking a link that unleashes ransomware or some other type of malicious computer virus.

Back in the early days of the internet, phishing emails were full of typos, and laden with obvious clues—appeals from faraway princes or rich relatives you never knew you had.  These were very easy to spot. But cybercriminals have upped their game since then. For example, some cybercriminals go to great lengths to match the branding, color schemes and logos associated with the companies they are trying to impersonate.

Phishing email scams generally fall into one of these categories:

  • Traditional phishing attack
    The traditional phishing attack casts a wide net and attempts to trick as many people as possible. A classic example of this is the Nigerian prince advance-fee scam.
  • Spear phishing
    Spear phishing attacks are designed to target a specific individual or small group of individuals. For example, a spear phishing attack my use information about a particular restaurant or small business to target one or more employees at that business. Or it could look like an email from a friend.
  • Whaling
    Whaling attacks, which have become increasingly popular in recent years, are targeted at high-profile victims like C-level executives and their teams. A typical whaling email may look like it was sent from the CEO of your company. But it’s really a fake designed to get you to share valuable information about the company.

Protect yourself from phishing scams
Phishing emails may be more difficult to identify these days, but there are some important steps you can take to avoid becoming a victim. If you answer ‘yes’ to any of the questions below, there’s a very good chance that you’re looking at a phishing email.

1.  Does the message ask for personal information?
Always remember that reputable businesses do not ask for personal information – such as social security and credit card numbers – via email.

2. Does the offer seem too good to be real?
If it seems too good to be true, it’s a fake. Beware of emails offering big rewards – vacations, cash prizes, etc. – for little effort.

3. Does the salutation look odd?
Reputable companies will use your name in the salutation – as opposed to “valued customer” or “to whom it may concern.”

4. Does the email have mismatched URLs?
If you receive an email from an organization that includes an HTML link in it, hover your mouse over the link without clicking and you should see the full URL appear. If the URL does not include the organization’s exact name, or if it looks suspicious in any other way, delete it because it’s probably a phishing email. Also, you should only visit websites that begin with ‘https’ because the ‘s’ at the end indicates advanced security measures. Websites that begin with “http” are not as secure.

5. Does it give you a suspicious feeling?
Trust your instincts when it comes to email. If you catch yourself wondering whether it’s legitimate, and your instinct is to ignore and delete it—then pay attention to that gut check.

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