Solicitor’s Fees at Risk Under DOL Fiduciary Rule

Is referring or recommending an advisor a fiduciary act under the new rule?

Referral fees are commonplace, with centers of influence (COIs) the most valuable source of new business for advisors — whether that includes CPAs, TPAs, attorneys, HR consultants or even other advisors who are not ERISA specialists. Some experts are predicting that more of the so-called “emerging” advisors will either be forced by their broker-dealer or RIA to refer ERISA cases to advisors that can act as fiduciaries, while other advisors, not wanting to jeopardize their rollover or financial planning services to plan participants, will want to refer the DC plan to another advisor.

There’s the question of what a reasonable fee is in such circumstances. It’s hard to imagine successfully convincing a DOL auditor (or jury) that the fees paid to the referring party are reasonable, especially if they do no work for the plan. So let’s assume that the advisor referred on the plan pays a one-time, or perhaps even an ongoing, marketing fee, though not from plan assets to the COI. Additionally, let’s assume that it won’t be positioned as a percentage of the plan advisor’s fee (which might draw unfavorable comparisons).

But there’s another twist because of the new DOL rule. The party making the referral for a specific advisor would likely be considered providing advice to the DC plan, and perhaps the participants. At least that was the opinion of the noted ERISA attorneys at a recent LPL Study Group. Do you think any COI would want to take on fiduciary liability for a relatively minimal referral fee? What about advisors making the referral because they can’t be or don’t want to be a plan fiduciary? Not likely.

That raises some other interesting questions: Are providers making referrals off the hook because they are not paid? What about telemarking firms that are working with an advisor, recommending them during the call or solicitation? Are firms that generate leads and then distribute them to advisors off the hook? Any hint of fiduciary liability would completely stop provider referrals, and it’s hard to imagine that telemarketers making appointments for a specific advisor for a fee can avoid fiduciary status.

Talk about unintended consequences.

Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.

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One Comment

  1. url url'>Scott W Rivard
    Posted July 6, 2016 at 6:14 pm | Permalink

    Great article. I may have to file it under “law of unintended consequences” as the governmental organizations and people responsible for this situation had no clue what they’ve created.
    I say this as one who was very disappointed in how imprecise the new fiduciary rule actually is.
    As it is currently written it is open to a world of interpretations, as you point out so well.

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