Todd Yancey

Investor and Strategic Advisor

How the BICE Rule Impacts Financial Services

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Recently, the Department of Labor released the first in a series of FAQs addressing the implementation of the Best Interest Contract Exemption rule (or BICE), regulation impacting financial advisory service providers and the type of services they are able to provide to their clients. BICE is intended to protect investors from predatory advisors; specifically from the risk of receiving financial advice that benefits the advisor more than the client. These FAQs were presented in a blog post from the DOL, which you can find on their website here.

Many of the people who read this post will be members of the financial services professional community–my friends, colleagues, peers, and partners– and I think it’s safe to say that most of us agree that predatory advisors are bad for the industry overall: they make the financial industry look untrustworthy, and discourage people from doing business with companies that are positively impacting the financial landscape. But I think it is equally safe to say that those of us who spend our lives working in this industry every day have a deep appreciation for some of the complexities involved in the implementation of BICE; complexities that your average person might not fully grasp.

When ADISA announced that the DOL had released this first set of FAQs, I was grateful to them for emailing an alert to our community of alternative investment professionals to the news, seeing as it has the potential to impact the way so many ADISA members structure their businesses and conduct transactions with clients. I am further grateful that they have gone to the effort to provide links to some of our industry’s most reputable publications’ coverage of the FAQ on their website.

Like many of you, I’m a pretty busy guy and it was very helpful to have ADISA’s time-saving help while I did my “due diligence” in researching the industry’s response to the initial FAQ and assessed its likely impact on Investor Services’ and IRA Services products and partnerships.

You do not need me to go into the specifics of what the FAQ covers, I’m sure many of you have already read the parts of it that are relevant to your businesses already. But I am glad to see that it was compiled based on feedback and input the DOL received from, among other sources, our community of financial services professionals. I am pleased that the content in the FAQ provides critical guidance on early-stage implementation logistics, among other things. It is important that our community is as knowledgeable as possible about these regulations so that we can comply with them without any unnecessary expenditure of resources or time.

Reflecting on this overall positive outcome from the FAQs lead me to further reflect on ADISA’s role in circulating this information to its members: again I am reminded of how important its services are to our community. Members of ADISA can be confident that they will always know the breaking news that impacts their businesses, be given the tools and direction to get and stay informed on the issues that affect us, and also be given a voice through all of ADISA’s advocacy efforts on our behalf. For those of you reading this that are not already members, I encourage you to consider joining: the organization is one of the most valuable networks and I have, as well as one of my most trusted sources of information.

For those of you who are members, I am sure you’ll agree with me that you and your business have had many opportunities to benefit from ADISA’s services. I have witnessed its potential in so many ways, which is why I am excited about the opportunity to serve on the board of directors. As a passionate member of this community and a strong believer in the value of ADISA’s programs and agenda, I hope my fellow members will consider voting for us when the board of directors election opens on November 7th.

The BICE Rule And How It Impacts Retirement Planners

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Proactive retirement planners may have already heard about the Department of Labor’s recent release of the first in a series of FAQs regarding the new rule called the Best Interest Contract Exemption” or BICE.  BICE, which goes into effect in April 2017, regulates the business transactions of financial services advisory firms and financial services advisors. If you are wondering how the rule may impact your self-directed IRA (or any other financial service vehicle such as a traditional 401k), you are not alone. There are still many questions remaining regarding the logistics of implementing BICE, not to mention its potential implication on financial markets.

But there are some things we do know, for example the rule’s intention is to protect investors from predatory advisors that try and steer their clients towards making choices that offer the biggest benefit to the advisor, even if it’s not the best choice for the investor. As many of you are investors ourselves, we’re sure you appreciate the value of that goal. Another thing we know is that the rule will expand the definition of “fiduciary” to include any financial professional who works with IRAs, or other qualified retirement plans. The term “fiduciary” and all the responsibilities that accompany that designation will also include anyone who provides advice or recommendations pertaining to IRA Rollovers, regardless of how that person is paid and whether or not they themselves handle the assets in question.

BICE is a complicated rule, and as the DOL states in their blog, there are still many questions that need to be resolved about what implementation will look like for different types of financial advisors and financial advisory companies. As the date it goes into effect draws nearer, we can expect to see additional clarifications from the DOL regarding exemptions from the fiduciary status designation, as well as predictions from all sorts of stakeholders speculating on the impact the rule may have on their businesses and the health of the retirement planning industry. But despite all the unknowns, there are some things you can do to make sure you’re met with any unpleasant surprises once the law takes effect:

  1. Talk to any and all investment professionals you work with. Ask them if they are impacted by BICE and if so, how you can expect to see that impact reflected in the services they currently provide you.
  2. Take the time to review all your existing investment accounts and understand what stage they’re in– are you still contributing money? How long until you start having required minimum distributions? What types of assets do you have the most exposure to? Once you have answers to these questions you will have more insight into what opportunities might be best for to look into both before and after the rule goes into effect.
  3. Pay attention to the information that the DOL is releasing. They have made it clear that the FAQ released at the end of February is just the first in a series. Check in with any financial services professionals you work with after each update to see if they’ve been impacted by new adjustments or can help you understand if and how the revisions impact you.

At this stage, there are too many undecideds and unknowns to speculate with any confidence on the overall impact of BICE on either you as an investor or on financial services professionals and their business operations.  But with a little preparation, you can make sure you are as protected as possible from any hiccups or surprises that may result from the uncertainty surrounding BICE and the logistical challenges of its implementation.

NASAA Concentration Limits

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In my career, and especially in my current position as CSO of Investor Services, I have had the great and somewhat unusual experience of getting to know stakeholders who work across all sub-sectors of the alternative asset industry. It is always a highlight for me to get to see my friends and business associates a the ADISA conference every year, and to interact with the organization and its many accomplished and interesting members at other community events. I am hoping to increase my level of involvement with the organization and its members even further in 2017 by being elected to serve on the board.

One of the motivating factors for my decision to run for a position on the ADISA board is that this year, as I have invested considerable time and effort into turning the IRA Services Trust Company brand into one that meets the needs of a bigger (and up til now, radically underserved community), I have come to an even more meaningful appreciation of the different ways that ADISA advocates on behalf of its community members, and looks out for all of our interests.

One hot topic for those of us involved in the alternative asset community is issue of the recent proposal that NASAA’s Policy Project Group recently submitted, a proposal that would amend the existing REIT guidelines to include a uniform cap on an investor’s exposure to non-traded REITs that is equal to 10% of that investor’s “liquid net worth”

While the members of NASAA’s Policy Project Group no doubt had excellent intentions when drafting the proposed amendment–intentions that have the best interest of all investors at heart– I am glad to see ADISA activating its member community against it for several reasons.
As we have built the Investor Services Cloud Platform, I’ve come to a new appreciation of how different customers need and respond to different things. They have different preferences for how they use technology, interpretations of what diversification looks like, preferences for how often and through what media they are contacted…it’s difficult to come up with a logo that reaches everyone, so how is it realistic to think that it’s possible to pass a regulatory amendment that looks out for the best interest of everyone it impacts?

Certainly, there are investors that are best served by limiting their non-asset REIT exposure, but there are others for whom the 10% cap is actually harmful. Moreover, any legislation like this fundamentally undermines the relationships that investors have with their financial advisors. Like the relationship between a patient and his or her doctor, it is one that depends on mutual trust and a comprehensive knowledge of the investor’s immediate and long-term goals. Further regulations impose limits on an advisor’s ability to offer his or her best possible advice, the type of advice that is customized and personal, and that takes into account so many factors that regulations simply can’t accommodate. So many ADISA members are investors, or advisor–or both– and I appreciate their efforts to mobilize this incredible community to make their voices heard on the issue. If you would like to add your voice to those of us who oppose a uniform limit on REIT investing I encourage you to do so here:

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About Todd Yancey

Todd Yancey is the Founder and Chief Revenue Officer for Investor Services, providing Digital Asset Custody for Financial Institutions, and the former Chief Strategy Officer and Executive Board Member of Forge Trust, a financial services firm offering transaction and custody solutions.

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