ERISA attorney Fred Reish has some thoughts on what he calls “the hottest ERISA issue of 2015.”
In a recent blog post, he acknowledges that is the DOL’s proposal to expand the definition of fiduciary advice.
Reish acknowledges that much of the opposition to the reproposal has been to the prohibited transaction rules that apply to fiduciaries. “In other words, the greatest controversy isn’t over the fiduciary standard, but instead it is about the fiduciary prohibitions of certain conflicts of interest that apply to fiduciaries.”
His post notes that the most publicized of those prohibitions is that a fiduciary adviser must receive “level compensation,” so that the adviser is not, in effect, able to recommend investments that increase the adviser’s compensation — a condition that he acknowledges that under ERISA and the Internal Revenue Code is a prohibited transaction. “While, on the face of it, the prohibition seems reasonable, it has the practical effect of eliminating, or at least severely restricting, many well-established practices by broker-dealers and insurance brokers. In other words, it could be highly disruptive of common current practices.”
Reish seems willing to take the DOL’s word that they have heard and are sensitive to the problem, and intend to address it in the final proposal. However, he admits that “it’s hard to tell if the proposed prohibited transaction ‘exemption’ (that is, an exception to the prohibited transaction rules) will be reasonable,” going on to note that “it appears that the proposal will require more disclosure about compensation and conflicts of interest … and will also require that a fiduciary adviser act in the best interest of the participants. Of course, that’s difficult to measure . . .”
Where does that leave us?
Well, as Reish says, “the devil will be in the details, in the sense that we won’t know whether the exemption will be workable until we actually see it.”
