Advisers should be more attentive to their services and to whether those services result in fiduciary status, according to Fred Reish.
In his most recent blog post, the noted ERISA attorney says that while many advisers (including broker-dealers and RIA firms) may be experiencing relief at the prospect of a delay in the fiduciary rule’s applicability date, those advisory services are still governed by the “old” fiduciary rule. And, according to Reish, with all the attention that has been devoted to fiduciary status and prohibited transactions, it is possible — perhaps even probable — that the old rule will be applied more vigorously.
As a result, he cautions that advisers need to understand its provisions and need to review their practices to determine whether they are currently acting as fiduciaries under the old rule.
Reish says that a proper discussion of that issue requires dividing the advisory services provided into four categories: advice to plans, advice to participants, advice to IRAs and recommendations of plan distributions and rollovers.
Turning first to the advice to retirement plans category, Reish reminds readers of the five-part test for fiduciary status, and observes that with regard to qualified retirement plans, such as 401(k)s, those conditions will likely be satisfied in many cases. As a result, and with his anticipated heightened scrutiny of advisers’ recommendations and fiduciary status, he says that broker-dealers and insurance agents should consider whether they are willing to run the risk of being a fiduciary.
If so, he recommends that there be a formal program in place for that purpose. For example, he notes that a broker-dealer might establish a fiduciary advisory program under its corporate RIA and allow its most experienced retirement plan advisers to participate in that program. He suggests that for those advisers who won’t be allowed to be fiduciaries under the RIA program, those broker-dealers should consider requiring that the advisers only recommend 401(k) providers who have platform fiduciaries.
Ultimately, Reish cautions that now that we are more aware of the fiduciary definitions and the impact of fiduciary status, advisers need to be more attentive to their services and to whether those services result in fiduciary status – and that their supervisory entities (for example, broker-dealers) need to make decisions about how those services will be offered, including whether some of the registered representatives can be 401(k) fiduciaries under the corporate RIA.