While the spring issue of NAPA Net the Magazine went to print before the Department of Labor released its fiduciary definition proposal, featured columnists Brian Graff and David Levine predicted correctly that the proposed rules will have a major impact on IRAs.
Graff, NAPA’s Executive Director, foresaw that the DOL would rule that an advisor discussing IRA rollover options with a 401(k) plan participant, for example, would fall under the definition of “investment advice” subject to fiduciary regulations. The DOL argues that pensions and 401(k) plans have strong fiduciary good-faith rules under ERISA, so this proposal would just extend those protections to IRAs. Graff called the idea behind the rule “patently absurd,” adding that IRAs are much different than employer-based plans, and thus should be regulated differently.
“We have serious concerns about the impact of the proposed DOL rule on the rollover process,” Graff writes. “In our view, it simply makes no sense to block participants from being able to continue a relationship with their trusted 401(k) advisor merely because a change in the nature of the relationship results in a slightly different fee structure.”
While Graff’s column lays out NAPA’s points of agreement and contention with the Obama administration’s proposal, Levine predicts how advisors in the IRA rollover market will be affected by both the DOL regulations and by recent proposals in Washington and at the state level designed to expand access to retirement accounts.
Like Graff, Levine believes that the new regulations would require IRA rollovers to face the same fiduciary compliance standards as 401(k) plans, where they currently face much less regulation. However, Levine remains optimistic that the DOL will ultimately carve out exemptions that continue to allow IRA advisors to give some kind of no-fee advice regarding rollovers, and adds that the IRA business could be in for a boom if mandated savings plans become more of the norm.
“With the focus on state and federal payroll deduction IRA programs, there may be more potential clients — and even 401(k) plans, if employers ‘graduate’ from IRAs to employer plans as some policymakers hope,” Levine writes.
The comment period for the DOL fiduciary regulations ends on July 20, having been extended by 15 days on May 18.
To read Graff’s column, click here and select “It’s All About the Rollovers.” To read Levine’s column, click here and select “IRAs — A Look Forward.” And to download the entire 78-page spring issue of NAPA Net the Magazine, click here.
