Posted by Bennett Aikin on February 23, 2015
The White House came out strong today in support of raising the standard of care for anyone providing advice on retirement accounts. Speaking at AARP, President Obama aimed his comments to investors, explaining how small differences in fees can have a big effect on account balances and making the case for a “best interests” standard for advisors. This came in coordination with the release of a report by the White House Council of Economic Advisers on the economic effects of conflicts of interests by advisors, as well as new PR efforts on the White House website. As we wait on our first glimpse of the DOL’s new fiduciary rule proposal, today’s announcement leaves little doubt that the DOL is sticking to its guns and that it has the backing of the White House in what will be a heated debate within the industry.
What’s it all about?
By now, the DOL has either already or soon will submit its “Conflicts of Interest” rule to the Office of Management and Budget, the first step towards its public release and comment period. Until the OMB has completed its review, we can only speculate on exactly what the rule will entail. However, we already have a good sense of what the two most significant developments will be:
- Broadening the definition of who is a fiduciary under ERISA – The current definition of an ERISA fiduciary requires that advice be both regular and the primary factor in decision-making. These requirements often scope out a broad segment of retirement service providers who have successfully maintained that their services are limited to a single act and do not constitute the primary factor for plans making investment decisions. By eliminating these criteria, the number of providers considered fiduciaries under ERISA would greatly expand.
- Advice to IRA-holders will be covered – Currently, DOL does not generally have enforcement over IRAs. So when participants roll over their 401(k) accounts into IRAs, they are losing some of their protections under ERISA and their advisors aren’t subject to DOL regulations. It is expected the DOL will look to change this dynamic and make advice to rollover retirement accounts into an IRA a fiduciary function under ERISA. This, too, would greatly expand the number of advisors who are considered fiduciaries under ERISA and cause advisors to take a close look at how they make recommendations to existing and potential clients.
What's it mean for advisors?
Advisors who are currently pursuing IRA rollovers or otherwise offering plan services, but do not currently consider themselves ERISA fiduciaries should be following this news closely. Depending on what happens over the coming months of debate and procedure until (or if) a rule becomes official, you may find yourself subject to a whole new enforcement regime, or have to seriously revamp your service offerings and processes.
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If you want to learn more about this subject, you should consider attending INSIGHTS 2015, fi360's Professional Development conference. Included on the agenda is an ERISA update from famed attorney Fred Reish, who will be covering the latest developments from the DOL and more.