The best-interest contract exemption (BICE) allowed fiduciaries to be paid through commissions or revenue sharing, practices that were otherwise not allowed.

The best-interest contract exemption (BICE) allowed fiduciaries to be paid in ways that were otherwise prohibited, such as commissions or revenue sharing. The new fiduciary rule was meant to be applied to investment advisors and planners taking on the role of fiduciary investment advisors, meaning that they would have to follow more stringent rules and avoid conflicts of interest.
Consequently, advisors who received additional commissions if a client picked a particular product might be in conflict if similar products that did not pay a commission were deemed to be comparable. BICE allowed the advisor to still receive that commission if they entered a contractual agreement stating that they would act in the best interest of the client and avoid any misrepresentation of the options. The BICE allowed individuals, such as financial advisors who are subject to the fiduciary provisions of the Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code, to accept compensation from selling proprietary products, as well as earn money based on commissions from recommending certain products. The best-interest contract exemption (BICE) was a rule passed by the Department of Labor that was part of a now-vacated redefinition of fiduciary. The rule allowed financial advisors and others to be paid for selling proprietary products, and to earn commissions when they recommended select products, otherwise not be allowed under the proposed legislation.

Best-Interest Contract Exemption (BICE)

A blanket recommendation is a recommendation sent by a financial professional or institution to all clients.

A blanket recommendation is a buy or sell recommendation sent by a financial professional or institution to all clients. A blanket recommendation is a buy or sell recommendation sent by a financial professional or institution to all clients. For instance, a retiree who can't afford to lose a lot of money and a young professional with a much higher risk tolerance may both be the recipients of a blanket recommendation to consider investing in a speculative stock. This advice to buy or sell a particular security or product is distributed in an indiscriminate fashion, regardless of whether the particular asset is ideal or even compatible with the investment goals or risk tolerance of the individual client. Sometimes blanket recommendations are appropriate, for instance recommending that all clients diversify their portfolios across several asset classes or to include a small portion of alternative investments like real estate or commodities.

Blanket Recommendation

The brochure rule is a requirement under the Investment Advisers Act of 1940 that requires a written disclosure statement to all clients. 

Table of Contents
What Is the Brochure Rule?
How the Brochure Rule Works
What Is Included in the Brochure
Who Should Receive a Brochure
Special Considerations The U.S Securities and Exchange Commission specifies two ways in which an advisor can satisfy the brochure rule:
1) The advisor can provide such disclosure by giving the client Form ADV Part 2A (brochure) and Part 2B (brochure supplement).
2) The advisor can provide an actual brochure containing the same information found in Form ADV Part 2A and 2B.
The document must include the following information:
Background information of the advisor
Services available and the fees for those services, including available discounts
Disclosure of any compensation received from third parties (such as commissions or referral fees)
Whether the advisor exercises discretion over client funds
Types of clients for whom advisory services are provided, including any minimum dollar amount of assets to be managed
Disclosure of any affiliation with a broker-dealer
Any material legal or disciplinary action that has occurred within the past 10 years
Any financial condition of the advisor (such as bankruptcy) that might impair its ability to meet client commitments must also be disclosed if the advisor:
Has discretion over client accounts
Has custody of client money or securities
Requires prepayment of more than $500 in fees, more than six months in advance SEC-registered advisors are not required to deliver a brochure to either (i) clients that are SEC-registered investment companies or business development companies; or (ii) clients who receive only impersonal investment advice from the advisor and who will pay the advisor less than $500 per year. An SEC-registered advisor is not required to deliver a brochure supplement to a client (i) to whom it is not required to deliver a brochure, (ii) who receives only impersonal investment advice, or to (iii) certain officers and employees of the advisor itself. The brochure rule is a requirement under the Investment Advisers Act of 1940 that requires investment advisors to provide a written disclosure statement to their clients.

Brochure Rule

The Investment Adviser Registration Depository (IARD) is an electronic system through which investment advisors register and file forms.

The Investment Adviser Registration Depository (IARD) is an electronic system through which investment advisors register themselves and file required reports and disclosures with the U.S. federal Securities and Exchange Commission (SEC) and with state-level regulators. Investment advisors use the IARD to file their Uniform Application for Investment Adviser Registration form, known as Form ADV, which officially registers them as investment advisors. The Investment Adviser Registration Depository (IARD) is an electronic system through which investment advisors register themselves and file required reports and disclosures with the U.S. federal Securities and Exchange Commission (SEC) and with state-level regulators. The Form ADV filings that investment advisers make through the IARD are available to the public through the Investment Adviser Public Disclosure website. An investment advisor who wishes to withdraw from some or all of the jurisdictions in which they are registered must use the IARD to file Form ADV-W.

Practice Management

More in Financial Advisor

Terms in Practice Management

Best-Interest Contract Exemption (BICE)

Blanket Recommendation

Brochure Rule

Investment Adviser Registration Depository (IARD)