Best Interests of Retirement Investors Protected in New DOJ Fiduciary Rule

Businessman drawing a finance graph on top of gold coin stack - Wealth growth concept

On April 6, 2016, the DOL published its final rule for implementing the fiduciary standard of care for firms and advisors in relation to ERISA and other plans such as 401(k), SEP and HSA plans. The implementation date of these rules will be in April 2017. In short, with few exceptions, advisors of retirement plans who receive fees or other compensation for such services, including registered investment advisors, broker-dealers, banks and insurance companies, will be held to a fiduciary standard to put the client’s best interest ahead of the advisor’s own profits. The determining factor whether advisor advice is covered by the fiduciary rule is whether the advisor makes a “recommendation” to the customer or otherwise represents or acknowledges a fiduciary relationship with the customer exists. A recommendation is broadly defined as a communication that would reasonably be viewed as a suggestion that the recipient take or refrain from a particular course of action. General investor educational materials, general economic discussions, and providing platform investment alternatives to plan fiduciaries are not considered recommendations. There are also exclusions for third-party administrators who assist plan fiduciaries. There are also exemptions to protect the employers and their employees who provide administrative services or general advice to their employee/plan participants. Finally, the new rule also provides that the DOL may issue specific exemptions, such as the Best Interest Contract Exemption, to allow firms to continue to rely on current compensation and fee practices and to engage in other activities that may trigger a conflict of interest, such as selling products from the firm’s own inventory or selling the firm’s proprietary products. Existing IRA accounts will be grandfathered and new contracts will not be required for existing accounts, but new recommendations to clients will be covered.

The rule mentions and dovetails with FINRA’s Rule 2111 which addresses situations where securities brokers are considered to be making recommendations. For example, the new rule makes clear that recommendations about whether to take distributions from a plan are covered.

Variable annuity products and index annuity products are covered by the new rule but fixed annuity products are not. Non-investment insurance products are also not covered. Recommending an investment advisor to a customer is not a covered recommendation.

For many advisory firms, it will be business as usual since they have always treated their customer relationships as fiduciary in nature; however, firms that continue to allow their advisors to put customers in unsuitable products or those with higher compensation for the advisors, or allow double-dipping by allowing commissions to be charged on trades in accounts otherwise being charged management fees, may find themselves in violation of the new rule and also exposed to breach of fiduciary duty claims by disappointed customers.

David Dyer is an AV rated commercial litigation attorney who regularly represents firms and individual brokers and advisors in securities arbitrations and lawsuits. He also represents firms and individuals in regulatory actions before state and federal regulators. Learn more about David here.

Categories: Uncategorized

Making Sense of #AppleVsFBI Issues: #DtSR Podcast

The USA v. Apple battle is one of the hottest issues currently being debated in cybersecurity, privacy, law enforcement, and perhaps even, water coolers in offices around the country. What the debate is lacking in substantive, factually-based, well-reasoned analysis, it certainly makes up for in passion and strong opinions. If you are not convinced, spend a few minutes reading the  #AppleVsFBI Twitter Feed.

The #DtSR gang jumped into this debate with Rafal Los (@Wh1t3Rabbit) and Michael Santarcangelo (@Catalyst) hosting guests Dave Kennedy (@HackingDave), Von Welch (@VonWelch), Gary (@livebeef) and Shawn Tuma (@shawnetuma) on the Down the Security Rabbit Hole podcast DtSR Episode 182 – Apple Versus the FBI.

Listen to the Podcast   /   Join the #DtSR Discussion on Twitter

For more great #DtSR content, check out the full Down the Security Rabbithole podcast homepage.

After listening to the podcast, take a few minutes to read #AppleVsFBIwhat the government argued in response to the “opening Pandora’s Box” argument back in 1977: Just 1 iPhone? For the Government, It’s Always Just 1 [Step] – #AppleVsFBI

Primary Source Documents:

Shawn Tuma (@shawnetuma) is a cybersecurity lawyer business leaders trust to help solve problems with cutting-edge issues involving cyber risk and compliance, computer fraud, data breach and privacy, and intellectual property law. Click here to read more from Shawn’s blog.

Categories: cybersecurity

Practical Ways Your Company’s Contracts Can Help Improve Its Cybersecurity Odds

I am sharing two articles with you because, as you well know, cybersecurity is a really hot topic right now due to the threat it poses to virtually all businesses. I hope you find these helpful.

I was recently interviewed by CSO Magazine and asked to give one suggestion that companies could do to improve their cybersecurity chances. I suggested they focus on their contracts as they relate to cybersecurity issues (HERE).

Yesterday, on Norse’s DarkMatters, I explained this issue in greater detail and provided basic examples of cybersecurity issues that every business should address in their contracts (HERE).

As you read through these articles, think about the different kinds of data your company has, the many ways the bad guys could get to it, and how additional safeguards could be put into place for those within your company as well as its third-party relationships. These are just a few examples of the areas where addressing cybersecurity issues in your contracts can help improve your company’s overall cybersecurity posture, and the contracts issue is only one of many areas that make up a comprehensive cyber risk protection program that is what all companies really need.

If your company already has a program that includes these kinds of precautions, then congratulations because you are well ahead of most other companies! If you do not, we would love to help you get these protections in place so let me know and let’s schedule a time to get together over breakfast or lunch – my treat!

Shawn Tuma (@shawnetuma) is a cybersecurity lawyer business leaders trust to help solve problems with cutting-edge issues involving cyber risk and compliance, computer fraud, data breach and privacy, and intellectual property law. Click here to read more from Shawn’s blog.

Categories: Uncategorized

Cyber Law is (the new) Practical Business Law

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Image courtesy of 89studio at FreeDigitalPhotos.net

I have had a thing for simplicity lately. A couple of months ago I was on stage speaking and something really hit me. I was watching the audience and the looks on their faces made me realize that, while what I was saying was technically accurate, to most of the people in the crowd, it sounded like gibberish — like when my mathematics-obsessed son tries to talk to me about Calculus. Or is it Trigonometry?

Who knows? And, I’ll bet that’s exactly what that audience walked out of there thinking. I vowed to do things differently. To simplify. More.

Cyber is the new reality. The business world is now fully immersed in the cyber world. Indeed, every business now has cyber issues unless it operates without a computer, data, or connection to the Internet. Can you think of any? Me either.

Since cyber is now a real-world issue that affects everyone, not just the uber-sophisticated techno-types, but real world people too, cyber law has likewise made its way into the mainstream.

The cyber world poses incalculable cyber risks for businesses and that means that cyber law is now practical business law.

That is the point of my recent article Practical Cyber Law: Yes, Even Your Clients May Face Cyber Risk Issues that was published in Volume 3: Winter 2015 Edition of Circuits, a publication of the Computer & Technology Section of the State Bar of Texas (full issue). Please give it a read and let me know your thoughts.

Shawn Tuma (@shawnetuma) is a cybersecurity lawyer business leaders trust to help solve problems with cutting-edge issues involving cyber risk and compliance, computer fraud, data breach and privacy, and intellectual property law. Click here to read more from Shawn’s blog.

Categories: cybersecurity, Uncategorized

New AAA Rules Effective September 1, 2014

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For businesses that do business with consumers and include AAA arbitration clauses in their contacts, the American Arbitration Association is instituting a new set of rules specifically tailored to consumer disputes.  The new rules supercede the Consumer-Related Disputes Supplementary Procedures that were previously used in conjunction with the Commercial Rules.

To access AAA arbitration after September 1, 2014, businesses will have to register their arbitration agreements with the AAA. This process includes submitting a copy of the agreement to the AAA for review to ensure it complies with the Consumer Due Process Protocol, submitting other relevant documents, and paying an annual fee. The agreement will then be listed on the AAA’s new Consumer Clause Registry for public access. If a business does not register its agreement, it will not be able to use AAA administration for its dispute, and the courts could find that the dispute must remain in court.

We are happy to assist any of our clients in pursuing compliance with the AAA’s new consumer arbitration registration, and can also assist you with the arbitration process for any disputes that arise.

James Pikl, Board Certified in Consumer and  Commercial Law, Texas Board of Legal Specialization.  Learn more about James Pikl here

Categories: Employment Law

5 Types of Jurors Who Can Make or Break a Case

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A good trial lawyer knows that jury selection can significantly affect the outcome of a case. Does your attorney know how to identify the most common types of jurors? Attorney Mitch Little has spent enough time in the courtroom to understand the “fine art” of jury selection. He details the 5 most common juror archetypes in a recent article published in Texas Lawyer. Click here to read the article.

J. Mitchell Little is a securities and commercial litigation attorney who loves football, Texas, and his family. He has been with Scheef & Stone for 9 years. Follow him on Twitter @jmitchelllittle or friend him on Facebook.

Categories: Uncategorized

TEXAS LAW ALLOWS POLICE TO USE NO-KNOCK ENTRY WHEN WEAPONS SUSPECTED

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When serving a warrant, police are supposed to knock and announce their presence and purpose to the occupants of a residence.  This is called the “knock-and-announce” rule; it is based on the “reasonableness” requirement of the Fourth Amendment and codified in Texas and other states’ laws.

Current U.S. Supreme Court case law (Richards v. Wisconsin) holds that before police may serve a warrant using a no-knock, surprise entry of a residence, they must either have a no-knock warrant approved by a magistrate or be able to articulate “exigent circumstances” at the scene that lead them to believe the safety of persons would be endangered by their knocking and announcing.  Knock and announce has always been a fundamental rule in 4th Amendment jurisprudence and its exceptions rigidly restricted.  In Texas, that law is now under attack.

In Quinn v. State of Texas, after failing to persuade the Texas Court of Criminal Appeals to hear the appeal, Mr. Quinn has asked the U.S. Supreme Court to overturn a criminal conviction stemming from a violation by the police of the knock-and-announce rule.  In that case, police admitted in court that the only “exigent circumstance” they relied upon for use of a no-knock entry to serve a search warrant for Mr. Quinn’s son (who was suspected of possession of steroids) was their suspicion that the occupants might be in possession of a rifle.  The police further testified that when they arrived on the scene to execute the warrant – at 12:06 a.m. –  they observed none of the traditional circumstances for using a no-knock entry, such as indications that weapons were being prepared for use, people running to escape, or toilets flushing (flight and imminent destruction of evidence are also limited exceptions to the knock-and-announce rule).  Instead, police admitted they were planning the no-knock entry six hours before the raid and did not bother to ask the magistrate for a no-knock warrant even though when they sought the warrant they knew they were going to use a no-knock entry to execute it (which borders on judicial deception by silence).

There are at least three troubling issues in this case.  First, if police “suspicion of firearms” is enough to justify a no-knock entry, then suspicion of any harmful substance or instrument on the premises should also justify a no-knock entry.  Kitchen knives, baseball bats, even rope, are all potentially dangerous instruments and logically, should support a no-knock entry under the theory proposed.  If allowed to stand, this would mean the “safety” exception to the knock-and-announce rule would always and completely swallow the rule.

Second, no-knock entries have traditionally been allowed only in extreme situations, such as where lives would be endangered if the police knock and announce their presence.  But a no-knock entry – especially where police suspect the occupants may be armed and dangerous in a state where the Castle Doctrine applies – is unquestionably the most hazardous way to serve a warrant; dangerous for the police, for the occupants, and for any bystanders.  Police claims of “better safety” from no-knock entries in those circumstances are patently disingenuous.

Third, a no-knock entry is a violent assault on the life and property of the occupants.  They usually occur using battering rams and military-style stun grenades, often deployed indiscriminately. If allowed for lesser reasons than to protect innocent life, for instance in a hostage situation, a no-knock entry does away with the presumption of innocence and subjects the occupants to government-inflicted penalties and harm before they have been convicted of any crimes.

Finally, last year, of the 80,000+ no-knock entries by police across the United States, nearly 2,000 of them were executed at the wrong address, subjecting these innocent occupants to the same terror and harm always inflicted by such actions.  Family dogs are almost always shot by police during these raids as well.

It is time for the Supreme Court to tell us, once and for all, whether the 4th Amendment still protects us from intrusive, violent, and unnecessary tactics by the police, or whether we have indeed become a police state in that respect.  The case is currently pending on petition for certiorari, case no. 13-765.

Photo Credit: http://www.americanspecialops.com/photos/est/tactical-response-force-nuclear-swat.php.

Categories: Uncategorized

TEXAS AG TAKES ON TRUE.COM AND FREEDOM OF CONTRACT

trueTexas Attorney General Greg Abbott filed a motion in federal bankruptcy court opposing True.com, a bankrupt dating website, from gaining court approval to sell off its member’s personal information.  According to the AG, when members signed up, True.com (actual company name: True Beginnings, LLC) agreed that it would not sell or transfer their very private information to any third party unless certain actions were taken.  The trustee entered into a contract to sell the company’s assets, including its membership information, to PlentyofFish Media, Inc.  The trustee’s lawyers are claiming that the “no sell” restriction should no longer be binding, or if it is, then it should be able to send an “opt out” notification to its members and if the opt-out is not returned, the court should treat that as permission to sell the member’s personal information. True.com points to a provision buried in the boilerplate of its privacy rules that allows it to sell member information should the company go out of business, subject to notice and the chance for members to opt out.

The AG, on the other hand, argues that True.com should instead be forced – contrary to the contract language – to use an “opt in” procedure, where the information may be sold of only those members who receive notice and affirmatively respond giving  permission for the sale.  In the alternative, the AG wants the court to require True.com to provide notice of the proposed sale to members and give them the opportunity to themselves remove from the True.com databases any personal information they don’t want sold.

Generally, a bankruptcy court has wide discretion to dispose of the assets of a bankrupt debtor for the benefit of the estate’s creditors.  This authority is often wielded in a way that partially or completely disregards terms of contracts between the debtor and others.  The argument is that True.com’s privacy policies create contract obligations to its members not to sell their personal information without their permission, and latter contract language about sale contradicts that promise.  But the AG’s argument that there is an “ambiguity” in the privacy policy is without merit.  The policy all members agreed to expressly provides for exactly what is happening: True.com is going out of business and it wants to sell member information after an opt-out procedure, as plainly set forth in the policy’s language.

The case points out two problems with privacy laws and how courts construe them.  First, do members “voluntarily” submit to boilerplate privacy (or other contract) provisions that few if any of them read?  The legal presumption is that people read and understand contracts they sign, but do any of us really read or understand all the disclosures we “agree” to every time our iPhone gets updated with new software?  Or all the boilerplate in a mortgage or insurance application?  Even we lawyers?  Second, is personal information somehow more fragile or important than other kinds of information such that “public policy” should step in and rescue people from unfortunate contracts they signed allowing that information to become a commodity?  What if the members provided this “highly sensitive” information knowingly in order to effectively obtain the services they were seeking to obtain (as appears to be the case here)?  Privacy laws are designed to protect consumers, but what if the consumers willingly give up those rights for what they perceive to be a greater good?  Can adults deal with their own rights as they see fit, or does the government need to “rescue us” from ourselves?

The AG admits that the member information is an asset of the bankruptcy estate, and therefore is estate property subject to sale by the trustee.  It is the extra conditions the AG wants to impose on that sale – conditions outside the written contract and ostensibly only based on “public policy” – that are the main concern.

Unfortunately, these issues will have to await decision for another day, because PlentyofFish withdrew its offer to purchase these assets, citing both the allegedly “undisclosed” restrictions on the debtor’s ability to sell the assets and the AG’s objections and threats to seek an injunction preventing the sale. Stay tuned. Fights like this one are likely to continue.

Jim Pikl is a trial and appellate lawyer. He is Board Certified by the Texas Board of Legal Specialization in Consumer and Commercial Law. His practice emphasizes a wide range of commercial and consumer litigation, including class actions and complex disputes involving multiple parties and claims. Mr. Pikl has extensive experience as lead counsel in dozens of bench and jury trials in state and federal court, as well as appeals all the way to the Texas Supreme Court and the United States Supreme Court.”

Categories: Uncategorized

Crossing Paths: Employment Law & Social Media

Social media is fully engrained into our daily lives, whether it be a quick log-in to Facebook on the subway, tweeting live during a football game, or sharing photos of a home-cooked meal on Instagram. Social media usage is, of course, not solely limited to individuals, but is frequently used by small businesses and corporations alike. According to a new report by the University of Massachusetts Dartmouth, 77 percent of Fortune 500 companies have active Twitter accounts, 70 percent have Facebook pages, and 69 percent have YouTube pages.[1]  Due to the pervasive use of social media, it touches even unexpected areas of our society, for example, employment law.

Photo credit: Institute for Social, Search, & Mobile Marketing

Photo credit: Institute for Social, Search, & Mobile Marketing

In light of recent changes in both state and federal regulations, it is imperative for employers to understand their rights in the sphere of social media. In January 2013, the Texas state house introduced a bill that would, “prohibit employers from requiring or requesting access to personal accounts of employees or job applicants through electronic communication devices.”[2]  The proposal included computers and social media accounts such as Facebook and Twitter as well as cell phones.  Texas State Representative Deborah Giddings, who introduced the bill, remarked that the “social media phenomenon is so new that…we have to set up these new guidelines to guide us into territories that, up to this point, have been uncharted.”[3]

Employers will likely find it increasingly difficult to keep pace with the unchartered changes in laws that regulate the crossroads of social media and employment law.  Employers should review their employee handbooks and company polices to ensure they are current and consult with an attorney to ensure their enforceability.  Organizations like Wiki Leaks and the controversy behind Edward Snowden will likely continue to bring privacy issues to the forefront of the American psyche and further propel the debate and proposal of even more legislation.  Thus, as social media’s popularity and usage continues to rise, the enactment of legislation to regulate the crossroads between social media and employment law will surely follow.

James Stafford focuses his practice in the area of business litigation and business formation as well as a diverse range of other litigation and business transaction matters on behalf of the firm’s clients. In addition to private practice, Mr. Stafford serves as a JAG attorney in the United States Army Reserves. For more information, email james.stafford@solidcounsel.com.


[1] Amy Gesenhues, Social Media Use Growing Among Fortune 500 List with 77% Tweeting & 70% on Facebook, Mktg. Land (July 23, 2013, 6:05 PM) http://marketingland.com/fortune-500-companys-social-media-use-on-the-rise-52726.
[2] H.B. 118, 2013 Leg., 83rd Sess. (Tex. 2013), available at http://www.legis.state.tx.us/tlodocs/83R/billtext/html/SB00118I.htm.
[3] Cody Permenter, Legislating Goes Social: Bills Would Address Web Post, Texas Tribune (Jan. 17, 2013) http://www.texastribune.org/2013/01/17/lawmakers-file-social-media-bills/.

Categories: Employment Law, Social Media

Religion in the Workplace: Where is the Line?

“Merry Christmas” and “Happy Hanukah” are phrases commonly used during the holiday season, but could the use of such a phrase in your workplace get you into trouble for proselytizing? While it might be hard for someone to claim that you were sharing your faith by simply saying “Merry Christmas” or “Happy Hanukah,” it is important to know if or when proselytizing can put your job in jeopardy. Employees in the private workforce are protected by the Free Speech Clause, but this right can be restricted.

photo credit: www.bbc.co.uk

photo credit: http://www.bbc.co.uk

The Free Speech Clause of the First Amendment protects employees who want to share their faith, but this does not mean that they can talk about their faith without restrictions. The First Amendment says, “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof…” It protects employees in the workplace who wish to speak about religious topics, and prevents companies from treating them differently based on faith alone.

However, a company has the right to limit religious expression in three instances: (1) if it imposes undue hardship on the operation of business and/or (2) if it causes or would cause customers or co-workers to reasonably believe that proselytizing actions express the company’s own message or (3) where the speech in question is harassing or disruptive. Furthermore, while evangelism is generally allowed, the person proselytizing must stop if the listener asks them to or makes it clear that such an act is unwelcome. For example, if a receptionist decorates the office with religious artifacts, the company is allowed to ask for them to be taken down because people could reasonably believe that the company was endorsing a certain religion.

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Categories: Uncategorized

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