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Potential Conflicts Of The DOL Fiduciary Rule



Last year, the DOL Fiduciary Rule required retirement plan advisers to act in your best interests when they provide investment advice for a fee or other compensation. While firms have long operated under standards designed to take clients’ needs, risk tolerance, and other suitability considerations into account, the rule addresses potential conflicts of interest that can arise. Read on to see the potential conflicts that the DOL Fiduciary rule might cause.

DOL Fiduciary Rule Affects Advice On Rollovers

If you are considering rolling over your 401(k) plan into an individual retirement account, you are on uncertain ground due to the U.S. Department of Labor's fiduciary rule. Essentially, the rule addresses who (and how someone) can advise you on the rollover. The advice-giver needs to comply with the rule's many twists and turns. Plus, some provisions of the rule itself are in flux.

This is new, and it changes how a financial adviser will deal with you. And in some cases, if you are doing business with a financial institution that currently houses both your taxable accounts and your IRAs, the IRAs may be moved to a special call center that handles retirement accounts.

The rule was first proposed a few years ago (April 20, 2015), made effective in June 7, 2016, with a delayed applicability date until June 9, 2017, and certain provisions of related exemptions postponed until July 1, 2019. Also, the whole package is still under presidentially mandated review.

Since certain provisions related to the rule have been delayed and others adopted, there is uncertainty in the marketplace as to how financial institutions should communicate with someone seeking advice (even if that advice-seeker is not a client of the institution).

As a result, under the rules that are currently in force, if you go to a financial institution seeking advice on whether to do a rollover of your 401(k), you may not get the kind of help you are seeking, explained attorney Kristina M. Zanotti of the Washington, D.C., office of K&L Gates LLP. Zanotti is co-author (along with K&L attorneys Jennifer R. Gonzalez, Richard F. Kerr, R. Charles Miller, C. Dirk Peterson, Eden L. Rohrer, Robert L. Sichel and George Zornada) of “Past, Present and Future of the DOL Fiduciary Rule.”

For lawyers, benefits experts and human resources professionals, this February 2018 report is a must read — it is a comprehensive review of the current state of the fiduciary rule.

As Zanotti explained, some institutions have decided to avoid fiduciary status by limiting discussions to “education.” Others will give covered investment advice, and by doing so fall under the definition of “fiduciary,” with all of the weight of that decision, including addressing prohibited transactions under ERISA (the federal law that governs 401(k)s) and complying with exemptions, such as the Best Interest Contract Exemption (“BIC” Exemption) or the Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (“Principal Transactions Exemption”).

In a study commissioned by the Securities Industry and Financial Markets Association, Deloitte reported that “access to brokerage advice services has been eliminated or limited by many financial institutions as part of their approach for complying with the Rule, and that retirement assets have shifted to fee-based or advisory programs because of those limitations. Fee-based accounts typically offer a higher level of service than brokerage, and generally have higher fees to compensate for the additional services.”

Notably, 53 percent of these firms are limiting access to advised brokerage for retirement accounts, impacting 10.2 million accounts and $900 billion in assets under management. Ninety-five percent of firms reduced access to products typically offered to retirement savers, including mutual funds, annuities, fixed income, private offerings and more, impacting 22.8 million accounts. Sixty-seven percent of firms have reduced the number of mutual funds offered to retirement investors.

“The DOL Fiduciary Rule has had significant impact across the retirement advice industry and was widely reported as an extremely disruptive regulation by study participants,” according to the report. SIFMA is a trade association representing the U.S. securities industry. SIFMA engaged Deloitte to study 21 SIFMA member firms whose businesses include providing individual investors with financial advice and related services.

There's more: As reported by Deloitte, investors may be faced with “a bifurcated experience for retirement investors who hold both retirement and non-retirement assets within the same financial institution.”

To read the Deloitte report, go here.
To read the K&L report, go here.

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Julie Jason, JD, LLM, a personal money manager (Jackson, Grant of Stamford, Conn.) and award-winning author, welcomes your questions/comments ([email protected]). To hear Julie speak, visit
(c) 2018 Julie Jason.
Distributed by King Features Syndicate Inc.
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