DOL 'Conflicted Advice' Rule a Game Changer

Industry insider and fiduciary geek Pete Swisher has penned a timely and insightful piece on the history and potential future impact of the Department of Labor’s new “conflict of interest” proposal.



Swisher, who has spent years studying and preparing for the issues surrounding the “definition of ‘fiduciary’” regulation, is the author of 401(k) Fiduciary Governance: An Advisor’s Guide, a textbook used for credentialing of advisors through the American Retirement Association, and he has also served as Chair of the Government Affairs Committee of the National Association of Plan Advisors.  



One of NAPA’s concerns ahead of the official release of the DOL’s proposal is what it might mean to individuals who work with advisors in their 401(k) plan and want some assistance with rollovers. Some of those concerns may have been addressed with the proposal, but Swisher highlights a number of new concerns, notably that potentially significant compliance burdens associated with rollovers, such as written contracts with multiple signatures; initial and annual disclosures; and a public website with disclosure and fee information.  



Swisher also notes a potential fly in the ointment with regard to enforcement: While the DOL has the power to write these rules, it has no enforcement authority over IRAs — enforcement is up to the IRS, who has very few people nationally focused on IRA compliance.  



Among the questions yet unanswered: What is “reasonable” compensation in an IRA? Will all “common forms of compensation” truly be preserved, or must compensation be revenue neutral, ERISA-style? Will posting advisor fees on a public website (as required in the Best Interest Contract exemption) amount to a requirement to disclose your business model and fees to the competition?  Will the substantial compliance burden of the Best Interest Contract exemption outweigh the benefits?



As Swisher observes, “a surface reading of the proposal’s intent might make it appear that industry methods are preserved so long as advisors embrace the “best interest” standard, but the devil is in the details, and the details raise serious questions and could lead to major upheavals and restructuring costs for advisors. It is possible that there are serious, significant, unintended consequences, which the industry will need time to identify.”



Swisher’s full analysis, "Game Changer: A First Look at the DOL's 2015 Conflict of Interest Proposal," is posted on NAPA Net's "Industry Intel" tab, here.