For advisers helping clients plan for retirement, drafting a binding contract may now simply be a cost of doing business.

That contract, through which advisers must pledge to act as fiduciaries and make recommendations in the best interests of their clients, is at the heart of a new fiduciary regulation from the Department of Labor, which is aiming to mitigate the harm to investors from conflicted retirement advice.

In longhand, the provision is known as the best-interest contract exemption, and advisers should begin thinking about how to incorporate it into their practices if they want to help clients plan for retirement.

“Regardless of business or compensation model, the DoL fiduciary rule will affect all advisers,” says Marilyn Mohrman-Gillis, managing director of public policy and communications at the CFP Board of Standards.

“There are RIAs that mistakenly believe that since they receive only fees based upon AUM or hourly fees, they will not have to rely on the BIC exemption,” Mohrman-Gillis says. “This is not true.”

Mohrman-Gillis expects that any adviser who facilitates the rollover of a client's account will need to rely on the BIC exemption, in one form or another.

There is a streamlined version of the contract requirement provided for in the DoL's rule, which would ease the compliance burden for so-called level fee advisers, firms that receive fees that don’t vary based on the type of product or investment that they are recommending.

There are also a handful of other exemptions under the rule, offering regulatory cover for firms that only provide educational information or operate as platform providers, among other carve-outs.

But if an RIA thinks that those conditions don’t cover the entirety of its retirement practice, “compliance with BIC is probably the safest option,” says Pat DiCarlo, an attorney with the law firm Alston & Bird in Atlanta, who specializes in retirement law compliance and litigation.

“There are other exemptions that may apply in particular circumstances, but those options generally involve somewhat more risk that there may be no exemption that applies to a particular transaction,” he says.

“BICE creates somewhat greater litigation risk, but the scope of the exemption is quite broad. It may become somewhat of an industry standard, even if the adviser thinks a different exemption is available,” DiCarlo says.

So how then should advisers approach the BIC exemption and other provisions of the fiduciary regulation?

“First and foremost, documentation for any decision [or] recommendation will be key,” says Brendan McGarry, an attorney with the law firm Kaufman Dolowich Voluck. “Advisers will have to be diligent keeping records of their basis for making recommendations.”

McGarry recommends that advisers go over the BIC exemption provisions (and the broader regulatory shift that the DoL's action represents) with their clients in person, as well as documenting the agreement in writing.

Mohrman-Gillis suggests that advisers formalize protocols around the BIC within their practices, beginning with the development of a model contract and new disclosures.

She recommends that RIAs update their training programs to address the DoL's rule and the BIC exemption specifically, and then on the back-end of the practice develop systems to make compensation information readily available to clients who request it.

Both DiCarlo and McGarry point out that the BIC exemption has a negative consent provision that allows advisers simply to notify clients of the new contractual terms, which would then take effect if the client doesn’t object.

The BIC exemption also carries the right of private action, affording clients the ability to sue their advisers if they feel the contract was violated, which naturally increases a firm's exposure to risk.

“Unfortunately, advisers will have to begin thinking defensively,” McGarry says.

But DiCarlo sees an upside, particularly if the BIC becomes the standard industry practice that he anticipates.

“I think the new language will sound helpful to the clients, and there’s an opportunity for advisers to make BICE compliance a selling point,” he says.

This story is part of a 30-30 series on tools and strategies for retirement.