In a recent blog post, ERISA attorney Fred Reish notes that 2016 promises to be the year of the fiduciary… the fiduciary rule, that is.
Reish notes that the fiduciary rule will rewrite the rules for investment advice and sales to retirement plans and IRAs, though the impact will vary depending upon whether the person making the recommendation is an RIA, a broker-dealer or an insurance agent or broker.
For RIAs, he says the greatest impact will be on investment advisers who recommend retirement plan distributions and rollovers and those who receive additional fees (for example, 12b-1 fees) from their IRA investors. Meanwhile, Reish says that advisers of broker-dealers will need to make significant changes in disclosures and compensation practices across the board (that is, for recommendations to plans and IRAs, and recommendations about distributions and rollovers).
Revolutionary Impacts
He does say that while the impact on retirement plan sales and advice may be less than is commonly expected, the impact on advice and sales to IRAs “will be nothing short of revolutionary,” as will the “capturing” of IRA rollovers, through recommendations to participants to take distributions.
Reish notes that while much of the attention on the fiduciary rule has been focused on the prohibited transaction exemptions, particularly the Best Interest Contract Exemption (BICE), he thinks there has not been enough attention given to the fiduciary standard of care. For example, he writes that if an insurance agent recommends an annuity contract, both the financial stability of the insurance company and the provisions of the annuity contract need to be evaluated and a prudence determination must be made, though he says he hasn’t seen much about that.
Similarly, Reish says that the recommendation of mutual funds to IRAs would need to take into account issues such as the quality of the investment management, the prudence of the amount allocated to that asset class or investment category, the reasonableness of the expense ratios, and so on.
He closes by noting that “once these consequences are fully appreciated, the nature of investment and insurance advice given to IRAs will be materially changed.”
Indeed.
