Expert Opinions on the DOL Fiduciary Regulation – Part 2

What are advisors not (yet) focusing on in the fiduciary regulation that they should be? Four of the nation’s leading ERISA legal experts – former Assistant Secretary of Labor Brad Campbell (now with Drinker Biddle & Reath), Groom Law’s David Levine, Marcia Wagner of the Wagner Law Group, and Fred Reish of Drinker Biddle & Reath – weigh in.

Though we’ve had the final regulations to study for some time now, advisors, consultants, home office staff and the legal community are still scrutinizing the text to evaluate its impact on business practices, compliance requirements and revenue structures. Here’s the take of these ERISA experts:

What is the aspect of the fiduciary regulation that you find/think that advisors haven’t focused on yet – that you think they should be?

Campbell: First, I think too many advisors believe that if they are already charging a level fee then they have nothing to worry about under the rule. That is simply not the case – almost all advice regarding rollovers, for example, results in a prohibited transaction under the rule, whether you charge a level fee or not. Second, I think too many advisors don’t fully appreciate the scope of the rule with respect to distribution advice. Many recommendations that financial professionals would not think of as retirement savings advice could be subject to the rule. For example, recommending that a distribution from an IRA be used to purchase life insurance for estate planning purposes, or to purchase a long-term care policy, would be fiduciary advice.

Levine: The need to truly “unpack” their activities. From theories that saying “hire me” covers a broad range of activities – including specific recommendations – to the complexities of managed account solutions where an advisor plays a role, a deeper dive will be necessary.


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Reish: I believe that the long-term impact of the fiduciary regulation is not yet commonly understood. For example, in order to make a prudent recommendation of an insurance product (e.g., a traditional fixed rate annuity or an individual variable annuity), an adviser needs to consider the financial stability of the insurance company and its anticipated ability to make payments 20, 30, 40 or more years in the future. That requires a degree of sophistication and a fair amount of work. Also, I am concerned that some advisers have not yet focused on the fact that the BICE refers to IRA investors as “retirement investors.” I believe that terminology reflects the Department of Labor’s belief that IRA money is held for retirement and should not be treated simply as a personal investment sandbox. In other words, the investment and insurance recommendation should be consistent with providing benefit adequacy and retirement income after the IRA owner has retired.

Wagner: How the grandfathering rule will apply to a previous book of business that an advisor does not want to transition. For example, the rule requires the compensation to be reasonable before the grandfathering rule can take effect.

Read the rest of this four-part series:

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