DEFINITION of 'Best-Interest Contract Exemption (BICE)'
The best interest contract exemption (BICE) is a process that allows investment advisors to collect commissions, revenue sharing, or other types of compensation as long as specific requirements are met. BICE is related to the Department of Labor’s fiduciary rule that expands the definition of a fiduciary under the Employee Retirement Income Security Act of 1974 (ERISA). The expanded definition includes people who provide investment advice and buy or sell recommendations in ERISA-covered plans in addition to other individual retirement accounts (IRAs). The new rule moves these investment advisors into the role of fiduciary investment advisors, meaning that they must follow more stringent rules and avoid conflicts of interest. Consequently, advisors who receive additional commissions if a client picked a particular product may be in conflict if similar products that do not pay a commission are deemed to be comparable. BICE allows the advisor to still receive that commission if they enter a contractual agreement stating that he will act in the best interest of the client and avoid any misrepresentation of the options.
The best interest contract exemption is also referred to as the BIC exemption.
BREAKING DOWN 'Best-Interest Contract Exemption (BICE)'
The Department of Labor’s (DOL) fiduciary rule is not scheduled to come into full force until January 2018, but there is widespread concern in the financial services industry. In the original draft, there was a requirement of ongoing disclosure of compensation over the life of a product, no clear limits on liability which would be decided by the plaintiffs’ bar, and the rules were set to start in less than a year. Some of these concerns were addressed in later versions, but the industry as a whole is concerned that the process for a best interest contract exemption is still too much of a burden.
BICE and Financial Services
Financial services companies have warned that the result of the expanded fiduciary definition will limit professional investment advice for middle and low income savers. This is simply because these potential investors will not generate enough income to justify the costs of pursuing a BICE. Instead, these clients with smaller account values may need to turn to robo-advisors or other low cost options for investment advice. Firms that continue to provide investment advice under a BICE will likely face higher costs as internal policies and procedures are updated for compliance.
-
Fiduciary
A fiduciary is a person who acts on behalf of another person, ... -
Financial Advisor
A financial advisor provides financial advice or guidance to ... -
Advisor
An advisor can be any person or company involved with advising ... -
Plan Sponsor
A plan sponsor is a designated party, usually a company or employer, ... -
Commission
A commission is a service charge assessed by a broker or investment ... -
Employee Retirement Income Security ...
The Employee Retirement Income Security Act of 1974 (ERISA) protects ...
-
Personal Finance
An Investor's Guide to the New DOL Fiduciary Rule
This is what the DOL's new fiduciary rule means for investors and the types of advisors who serve them. -
Financial Advisor
Fiduciary Compliance Next Big Thing in Technology
The new fiduciary rules have many advisors looking for new technologies to stay compliant and help mitigate losses. -
Financial Advisor
The Impact of Fiduciary Rules on 401(k) Advisors
The final version of the DOL’s fiduciary rule provides some relief for advisors who serve 401(k) plans. -
Financial Advisor
The Pros, Cons to the DoL's Fiduciary Rule Changes
The DoL's new fiduciary rule change is the source of much debate in the financial industry and retirement planning community. Here's why. -
Personal Finance
Does It Matter If My Financial Advisor is a Fiduciary?
Should your advisor be a fiduciary? Here's what that means, and why you should ask your advisor if they already are one. -
Financial Advisor
How Advisors Can Best Prepare for Fiduciary Rule
Financial advisory firms should take a proactive approach to getting personnel ready to comply with the new fiduciary rules. -
Financial Advisor
Why You Should Grill Your Advisor About Repapering
If your financial advisor was not previously bound to a fiduciary standard, there is a chance you are losing returns due to conflicted advice. -
Financial Advisor
The Fiduciary Rule: What Will Implementation Cost?
Compliance with the new fiduciary rule is proving to be costly for many firms. -
Financial Advisor
Advisors: Here's Your DoL Fiduciary Rule Checklist
Advisors should start working with retirement plan sponsors sooner rather than later to help them become compliant with the new fiduciary rule. -
Personal Finance
Is Your Financial Advisor Firing You?
You probably don't want an advisor who'd drop you because of the fiduciary rule. What to do instead.
-
Why do financial advisors have a fiduciary responsibility?
Find out why financial advisors have a fiduciary duty to their clients, including what fiduciary duty entails and an example ... Read Answer >>