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IRAs Become Primary Fiduciary Battleground

While most people thought that the battle over the definition of fiduciary under ERISA would be confined to the qualified plan market, it seems that the real battle may be fought over IRAs.

Moving to a levelized compensation, fee based model for advising a plan as a fiduciary seems acceptable to an industry that was moving in that direction anyway. But the question is whether that makes sense for IRAs, especially smaller accounts, and whether the DOL rather than the SEC should be taking the lead. A recent article published in Wealth Management succinctly lays out the legal and business issues.

The primary issue is whether advisors would be willing to act as a fiduciary for smaller IRA accounts, which are mostly served by commissioned brokers. If they are not, will there be a group of investors left without access to advice, a concern expressed by the Congressional Black Caucus.

The SEC, which has not been as aggressive as the DOL in moving ahead with its own uniform fiduciary standard (which it can do under Dodd-Frank), usually allows conflicts if there is proper disclosure — but the DOL does not.

The recent GAO study which concluded that workers leaving their jobs are being given conflicted and incorrect information by money managers puts an even brighter spotlight on the IRA market, including pressure from congressional leaders calling for more disclosure of fees and conflicts.

So who will benefit if commissioned brokers are not allowed to advise IRA accounts? Perhaps fee based advisors that can create a business model for smaller accounts, as well as direct sellers. But certainly not plan advisors acting as fiduciaries, whom the DOL wants to prohibit, or limit with some exemptions, from advising participants in their plans when they roll over their accounts.

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