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‘Recommendation’ May Entail More Than Meets the Eye

The Department of Labor’s proposed fiduciary rule would make many changes. One of them — a change that's central to what constitutes a fiduciary act and who a fiduciary is — is what constitutes a recommendation.

And that was one of the topics addressed by panelists in a discussion at the recent LIMRA Annual Conference. According to LifeHealthpro, Great West Financial’s David C. Aspinwall, Northwestern Mutual’s John E. Dunn and Carleton Fields Jorden Burt’s James F. Jorden argued that the proposed rule would change the definition.

Dunn remarked, says LifeHealthpro, that the proposed rule defines the term “very broadly” and that under the rule, a recommendation would be “any communication that can reasonably be viewed as a suggestion… saying someone should engage in or refrain from taking a particular course of action.”

Investment discussions, too, could be considered fiduciary functions, according to the panelists. They said that such discussions would meet the rule’s definition of investment advice when several things take place for compensation:


  • Referring a prospective or current IRA holder or 401(k) participant or beneficiary to an advisor (including referrals to managed accounts);

  • Recommending that a prospective or current IRA holder or 401(k) participant or beneficiary roll over into an IRA; and

  • Recommending which funds and/or annuity products should be placed into an IRA or 401(k), including specific recommendations regarding asset allocation.


Jorden noted that there are exceptions from this expanded definition for providing investment education, such as the following:

  • information regarding general operation of an IRA or 401(k);

  • general financial, retirement and investment information; and

  • asset allocation models.


Jorden told attendees that the key is that “essentially anything you do that’s associated with making or giving advice or information, particularly in the IRA marketplace would qualify as a recommendation under the proposed rule regardless of whether you’re suggesting someone do something,” the LifeHealthpro report says.

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