Independent registered advisory organizations — fiduciariesbefore the Obama-era Labor Department expanded the definitionof fiduciary advice — are predicted to see a surge indemand under the conflict-of-interest rule, according to mostindustry insiders and independent analysts.

While they won't be exposed to the rule's more onerouscontractual requirements, RIAs are not completely off thehook in complying with rule, according to a client alert fromattorneys at Drinker Biddle.

In fact, come 11:59 p.m. EDT this Friday, the end of day on June9, when all regulated entities will have to begin operatingunder the rule's impartial conduct standards, even advisorslong beholden to a fiduciary standard will be affected.

In one sense, the impartial conduct standards encapsulate theintent and spirit of the fiduciary rule without applying all of itsred tape.

Under the requirement, advisors on qualified retirement accountsand plans will have to give advice that is in clients' bestinterest, only receive reasonable fees or compensation, and beprohibited from making misleading statements.

But in another sense, the standards create new oversight anddocumentation requirements and potential new liability, even forthose advisors that were previously regulated as fiduciaries,according to a Drinker Biddle client alert that lays outthe June 9^th's implications for non-affiliated RIAfirms.

For financial organizations advising 401(k) sponsors and planparticipants, not too much will change, the alert says.

But advice on plan distributions or rollovers toIRAs will “usually result in a prohibited transaction becausethe RIA will receive additional compensation,” says the alert,which was co-authored by Fred Reish.

In such cases, RIAs will have to rely on a new prohibitedtransaction exemption—the so-called Transition BICE, a streamlinedversion of the rule's Best Interest Contract Exemption.

In order to satisfy the best interest requirement under theimpartial conduct standards, advisors will have to consider “allrelevant factors” for justifying a recommendation to rolloverassets, including comparing investments and fees between thesponsored plans and IRAs.

Technically, a full comparative analysis is not required underthe rule until January 2018.

But Reish and his team recommend RIAs take a more proactiveapproach to monitoring and documenting advice on rollovers. Whilethe Labor Department has indicated more than once that it will notbe pursuing enforcement against firms making a good faith effort tocomply with the rule during the transition period, plaintiffs'attorneys are under no such obligation.

“Although not required until January 1, 2018, we recommend thatRIAs follow the basic process required under BICE Lite to documentwhy the rollover is in the investor's best interest,” the alertsays. “Firms should consider developing written materials to assistIARs in making these determinations, and maintaining thatdocumentation.”

IRA-to-IRA transfers and advice on managing investments

RIAs will also have to abide by the impartial conduct standardswhen recommending a client move IRA assets from one firm to theirown, as it would result in new compensation for the advisor.The alert says the process for justifying when the recommendationis in the client's best interest will be similar to the processused for plan-to-IRA rollovers.

RIAs will also engage in a prohibited transaction when theycharge different fees on different investment products. When an RIAapplies full discretion in managing assets and allocatinginvestments, they will have to use the full BIC Exemption in orderto assure the impartial conduct standards are satisfied, the alertsays.

The alert also recommends third-party benchmarking services toassure fees satisfy reasonable compensation requirements.

If an RIA merely recommends an investment strategy, and leavesthe ultimate management decisions to clients, then financialorganizations can apply the less stringent Transition BICE.

One way to sidestep entanglements with any version of the BICExemption is to level fees across asset classes by charging ablended fee, the alert says.

For advice on IRAs, that strategy would avoid a prohibitedtransaction, meaning the impartial conduct standards will notapply. “However, the RIA will still be subject to the fiduciaryobligations under the Advisers Act,” the alert says.