Department of Labor and Federal Trade Commission shake up industry practices
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The Department of Labor and the Federal Trade Commission finalized rules last week that could shake up industry sales and hiring practices.
The DOL's Retirement Security rule, which spells out who is considered a fiduciary under the Employee Retirement Income Security Act, expands the definition to include professionals giving one-off advice.
Industry lawyers say that could include some sales staff at asset managers . Sales pitches, explicitly, don't count. But anything that goes further may. A recommendation with a call to action is deemed fiduciary advice, so sales professionals may have to choose their words carefully.
"Your definition of salesmanship would be very different from the Department of Labor's," said Steven Rabitz, a partner at Dechert.
Open to debate is whether a menu of investment options counts and whether a pension investment committee counts as a "fiduciary."
The FTC's recent ban on non-compete agreements may also have serious implications for asset management firms, particularly shops with "distinctive strategies."
Industry recruiters and compensation consultants said asset managers may shy away from lift-outs or from hiring talent to develop new strategies. That's because if those parties were to pick up and leave, only to mimic the formula elsewhere, companies would be powerless to sue.
"I'm going to pay you to develop this product and you go compete with me tomorrow?" said Alan Johnson, a managing partner at compensation consultancy Johnson Associates. Protecting against that would take "elaborate" non-disclosure and non-solicitation agreements. Even those could be painted as de facto non-competes.
"I can't even really tie you down," said Johnson.
Firms may also make deferred comp a bigger part of incentive packages – making it harder to recruit talent, said Ian Levin, a partner at Schulte Roth & Zabel.
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