There is a long road from a fiduciary proposal to a rule in force.
When you read this column, the proposed “new” fiduciary rule will be read, digested, analyzed, and the subject of countless articles, webinars, and more. So, where do you go now as an advisor?
For advisors or the advisory organizations I work with, we often use the following framework:
First, the rule is proposed as of now—and not in force—so there is time to step back and evaluate what this proposal means to you and your organization.
Second, focus on a core set of questions:
- What is the scope of your advisory practice?
- Is it retirement plans only?
- Is it plan fiduciary-focused, participant-focused, or both?
- What services and offerings do you and your organization provide?
- Do you or your organization also offer wealth management and IRA services?
- Do you advise on plan and IRA rollovers?
- Are you providing 3(38) services, wellness, managed account, or PEP-related services?
Answering these questions can help frame what is—and is not—relevant under the proposal to you and your organization.
Third, once you identify your actual services, it can be easier to determine what the proposal means to you.
Looking at each line of business/service (including areas that you may not have considered “fiduciary” in nature before the proposal), digging into how each item is offered, sold, referred, and paid for allows you to get to the core issues of:
1. Are you a fiduciary under the proposal?
2. Would you have a potential conflict under the proposal that you need to address?
3. If there is a potential conflict, what is your strategy for compliance with applicable ERISA or IRA-prohibited transaction rules?
Fourth, if you have reached the issue of compliance and prohibited transactions, are you looking at a statutory exemption that remains available?
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Alternatively, if you have had a compliance strategy under a prior DOL “class” exemption (such as Prohibited Transaction Exemptions 77-4 (for affiliated mutual funds) or 84-24 (for insurance transactions), will that exemption still be available or has it, as many commonly used prohibited transaction exemptions would under the proposal, been changed or restricted such that you may need to look for another exemption.
Commonly, based on the DOL’s proposal, the DOL may be suggesting you look to its updated version of Prohibited Transaction Exemption 2020-02, which would now cover additional services such as “robo-advice” and pooled employer plans. Other compliance solutions may also be available, but further examination may be necessary.
Fifth, consider when to prepare for the next steps. As was the case with the 2016 fiduciary rule and the 2020 fiduciary guidance, there is a high probability that there will be litigation over the proposal, so even though evaluating early is important, consider when to make any changes in prohibited transaction compliance and/or business strategy you and your organization conclude are necessary is a distinct and separate discussion. Also, the proposed rule would be effective 60 days after the final rule—which means compliance deadlines could come quickly.
As advisors have seen and will continue to see, there is a long road from a fiduciary proposal to a rule in force. However, proactively evaluating short- and long-term business and client needs now while also recognizing a lot can change from here to there can often be a positive step that truly acts, as the proposal says, in the “best interest” of all involved in this process.
David N. Levine is a principal with Groom Law Group, Chartered, in Washington, DC. This column originally appeared in the Winter issue of NAPA Net the Magazine.
