We offer traditional and Roth individual retirement accounts (IRAs). We provide general information about the types of IRAs we offer, and the customer chooses which type of IRA they will be opening. We do not charge a fee or commission when an IRA account is opened, although we may charge a fee when the IRA account is closed, for example when it is rolled over to another institution. Are we subject to the Department of Labor’s Fiduciary Rule?

No, we do not believe that your bank is subject to the Fiduciary Rule in the circumstances you have described.

The Fiduciary Rule’s revised definition of a “fiduciary” greatly expands the scope of the rule to include any person who (1) renders investment advice (2) for a fee. The rule should not apply when your bank does not meet both prongs of this test.

We discussed this question with an attorney at the Department of Labor (DOL), which provides a dedicated phone number for fiduciary rule questions at 202-693-8825. While the DOL attorney was unable to provide formal or definitive guidance, she did point to a DOL FAQ that draws a distinction between providing general information versus providing customized advice to an individual recipient. The FAQ states that a “description of the range of services that the financial institution can provide does not constitute a recommendation of any particular account type as appropriate for the prospective customer merely because the financial institution represented that it provides high-quality services for competitive fees. However, if the financial institution actually recommends a particular account type or service, that would be a fiduciary investment advice recommendation under the Rule.”

Accordingly, if your bank is simply informing prospective customers about the various IRAs that it offers, without recommending particular investment funds, we believe that the fiduciary rule should not apply to your bank in such situations.

Note that we are not addressing the question of whether you are charging direct or indirect fees or other compensation that might trigger the second prong of the Fiduciary Rule test. While your bank may not be charging a fee related to your customer’s opening of an IRA, it very likely is receiving some form of compensation for maintaining the IRA (for recordkeeping and other custodial services, for example). If you were recommending specific investment funds for the IRA and also were receiving some type of “fee or other compensation” from the investment funds offered for your IRAs, and particularly if those fees varied from fund to fund (reflecting their various expense ratios, for example), we think that the DOL likely would view the bank as receiving “direct or indirect fees or compensation” in connection with your investment advice, triggering application of the Fiduciary Rule.

For resources related to our guidance, please see:

Employee Retirement Income Security Act, 29 USC 1002(21)(A) (“. . . a person is a fiduciary with respect to a plan to the extent . . . (ii) he renders investment advice for a fee or other compensation, direct or indirect . . . .”)

Department of Labor, Conflict of Interest FAQs (Part II), page 1 (January 2017) (“Under the Rule, fiduciary investment advice status depends on whether the advising person makes a ‘recommendation’ regarding an investment or investment management and receives direct or indirect fees or other compensation.”)

Department of Labor, Conflict of Interest FAQs (Part I), page 4 (October 27, 2016) (“[E]ven if a person recommends a particular investment, the person is not a fiduciary unless the person receives compensation, direct or indirect, as a result of the advice. If, however, the firm or adviser does make a recommendation concerning a rollover or investment transaction and receives compensation in connection with or as a result of that recommendation, it would be a fiduciary and would need to rely on an exemption.”)

29 CFR 2510.3-21(a) (“ . . . a person shall be deemed to be rendering investment advice with respect to moneys or other property of a plan or IRA described in paragraph (g)(6) of this section if (1) Such person provides to a plan, plan fiduciary, plan participant or beneficiary, IRA, or IRA owner the following types of advice for a fee or other compensation, direct or indirect: (i) A recommendation as to the advisability of acquiring, holding, disposing of, or exchanging, securities or other investment property, or a recommendation as to how securities or other investment property should be invested after the securities or other investment property are rolled over, transferred, or distributed from the plan or IRA; (ii) A recommendation as to the management of securities or other investment property, . . . ; or recommendations with respect to rollovers, transfers, or distributions from a plan or IRA, including whether, in what amount, in what form, and to what destination such a rollover, transfer, or distribution should be made

29 CFR 2510.3-21(g)(3) (“The term ‘fee or other compensation, direct or indirect’ means, for purposes of this section and section 3(21)(A)(ii) of the Act, any explicit fee or compensation for the advice received by the person (or by an affiliate) from any source, and any other fee or compensation received from any source in connection with or as a result of the purchase or sale of a security or the provision of investment advice services, including, though not limited to, commissions, loads, finder’s fees, revenue sharing payments, shareholder servicing fees, marketing or distribution fees, underwriting compensation, payments to brokerage firms in return for shelf space, recruitment compensation paid in connection with transfers of accounts to a registered representative’s new broker-dealer firm, gifts and gratuities, and expense reimbursements. A fee or compensation is paid ‘in connection with or as a result of’ such transaction or service if the fee or compensation would not have been paid but for the transaction or service or if eligibility for or the amount of the fee or compensation is based in whole or in part on the transaction or service.”)

Department of Labor, Conflict of Interest FAQs (Part II), pages 10–11 (January 2017) (“ Q19. . . . A prospective customer approaches the financial institution and says she wants to roll over her money from her qualified plan into an IRA with the financial institution. A representative of the financial institution explains the services provided in each of the programs and tells the customer that the financial institution is a recognized leader in the industry for providing high-quality services with fees that are lower than many of its competitors. Does this constitute an investment recommendation under the Rule? No. The Rule covers the recommendations of others to provide investment advice or investment management services and recommendations on the selection of investment account arrangements (e.g., brokerage versus advisory). Here, the financial institution, through the representative, only recommended itself, not another person to provide investment advice and investment management services, and the description of the range of services that the financial institution can provide does not constitute a recommendation of any particular account type as appropriate for the prospective customer merely because the financial institution represented that it provides high-quality services for competitive fees. However, if the financial institution actually recommends a particular account type or service, that would be a fiduciary investment advice recommendation under the Rule.”)