This is my nineteenth article about interesting observations about the fiduciary regulation and the exemptions.
In an earlier post (Angles #16), I described how advisers could use the “hire me” approach to explain their services and fees without becoming a fiduciary for that purpose. Generally stated, under that approach, an adviser could explain his services and fees, but could not discuss specific products or platforms. In other words, if the adviser “suggested” specific products or platforms, the adviser would become a fiduciary even under “hire me.” The DOL explained that result in the preamble to the fiduciary regulation:
“An adviser can recommend that a retirement investor enter into an advisory relationship with the adviser without acting as a fiduciary. But when the adviser recommends, for example, that the investor pull money out of a plan or invest in a particular fund, that advice is given in a fiduciary capacity even if part of a presentation in which the adviser is also recommending that the person enter into an advisory relationship. The adviser also could not recommend that a plan participant roll money out of a plan into investments that generate a fee for the adviser, but leave the participant in a worse position than if he had left the money in the plan. Thus, when a recommendation to ‘‘hire me’’ effectively includes a recommendation on how to invest or manage plan or IRA assets (e.g., whether to roll assets into an IRA or plan or how to invest assets if rolled over), that recommendation would need to be evaluated separately under the provisions in the final rule”
I mention this because I have recently seen some confusion about the extent and scope of “hire me.” As you might expect, it is because people want to extend “hire me” to all kinds of scenarios, and thereby limit their fiduciary status and legal exposure. For example, I was recently asked if an adviser could tell an IRA owner that the adviser would charge 1% per year to help select, manage, and monitor individual variable annuities. That might work if the IRA owner initially told the adviser that he wanted to hire someone to search for individual variable annuities. However, if the “suggestion” that an individual variable annuity would be appropriate comes from the adviser, that would likely result in fiduciary status for identifying the particular type of investment to be made (and, therefore, cause the loss of the non-fiduciary “hire me” approach).
So, as a word of warning, if you intend to use “hire me” to market your services, keep in mind that it is to describe your services and fees, but without a suggestion that any particular product, investment or platform, be used by the IRA owner.