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What About Rollovers That Aren’t Recommended?

Under the DOL’s fiduciary regulation, the recommendation of a plan distribution and IRA rollover will be fiduciary advice, subject to the best interest standard of care and the prohibited transaction rules. But what if a participant takes a distribution and rolls over into an IRA with an adviser… without a recommendation by the adviser?

That’s the latest of Fred Reish’s “interesting angles” on the Labor Department’s fiduciary rule and exceptions. In his most recent blog post, Reish explains that, without much fanfare, the DOL explained the “unsolicited” alternative in Q4 of the recently issued FAQs. Here the question posed by the DOL was: “Is compliance with the BIC exemption required as a condition of executing a transaction, such as a rollover, at the direction of a client in the absence of an investment recommendation?”

To which, Reish notes, the DOL answered: “No. In the absence of an investment recommendation, the rule does not treat individuals or firms as investment advice fiduciaries merely because they execute transactions at the customer’s direction.”

However, he cautions that the DOL goes on to admonish: “If, however, the firm or adviser does make a recommendation concerning a rollover or investment transaction and receives compensation in connection with or as a result of that recommendation, it would be a fiduciary and would need to rely on an exemption.”

“In other words,” Reish explains, “fiduciary status is tied to a recommendation by an adviser. Absent an adviser recommendation, a decision made by a participant is not regulated by the fiduciary and prohibited transaction rules.”