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Graff: DOL Rule Could Devastate Participant Education

With so much attention being paid to the potential impacts of the DOL’s fiduciary rule proposal, NAPA Executive Director Brian Graff points out that there is a lesser known consequence to the rule that could be equally calamitous for both advisors and participants.

In the Summer 2015 issue of NAPA Net the Magazine, Graff writes that the DOL proposal would clamp down on advisors who give investment education to large groups, potentially making them liable for the outcomes of “individual participants they know nothing about.” The rule, Graff says, would classify situations where advisors use different model portfolios to give participants an overview of the investment process as “fiduciary advice,” even if the advisor has no specific knowledge of an individual’s risk tolerance.

As a result, he says, advisors would shy away from giving investment education to large groups, since it would create a potentially large liability without a lot of tangible benefit. Graff writes that the rule would create a situation where advisors, in order to fulfill their fiduciary duty, would have to either give individual assessments to participants (at a significantly higher cost than currently), or plan sponsors would eschew the education component altogether.

By blurring the line between fiduciary advice at the plan level and the participant level, Graff says the DOL is putting up a wall between advisors and investors, without providing any benefit to either.

“If the DOL’s proposed rule moves forward in its current form,” Graff writes, “it will have a huge chilling effect on the provision of important investment education of this type to participants.”

In addition to Graff’s regular “Inside the Beltway” column, the Summer issue of NAPA Net the Magazine highlights what the new generation of plan advisors are thinking — including the 2015 NAPA “Young Guns” list — along with a recap of this year’s NAPA 401(k) Summit in San Diego, and the cover story, which examines five key factors that advisors should look at when determining whether longevity-planning options are right for their clients. The Summer issue also features regular contributors Nevin Adams, Steff Chalk, David Levine, Warren Cormier, Don Trone, Fred Barstein, Jerry Bramlett and NAPA President Joe DeNoyior — and marks the debut of a new column on financial wellness by Jania Stout.

To view Graff’s column, click here and select “Participant Education May Become Dangerous.” And to view a pdf of the full 48-page issue, click here.

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