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DOL Land Grab Will Result in New Fiduciary Rule

Guest Contributor January 19, 2016

financial planning research
Updated on: February 2, 2021

2016 is the first year that baby boomers start turning age 70. Of course, this is in addition to the estimated 10,000 boomers turning 65 every day until 2029. What this means is more retirement plan assets are leaving retirement plans and moving to IRAs. As a result, the total retirement assets over which the Department of Labor (DOL) exercises control is shrinking at an accelerated rate.

Although the DOL has not said so publicly, I suspect the pending new definition of fiduciary is in some way tied to the fact that their client base is shrinking. As you know, Congress approves the DOL’s budget, which has grown as plan assets have grown.

It seems logical the DOL’s budget would shrink if plan assets shrink. However, this new fiduciary definition would cause IRA rollover advice to fall directly within the DOL’s oversight by way of their authority over IRS prohibited transaction rules applicable to the fiduciary standard that is built into the Best Interest Contract (“BIC”) wording. Thereby increasing the retirement assets over which they exercise regulatory control.

In turn, this land grab could provide the DOL with the justification to seek approval for a budget increase as they expand the scope of their responsibilities concerning a fiduciary standard of conduct tied to the BIC which applies to advice rendered on a growing block of IRA rollover assets.

Again, this is simply my assumption, but based on the current situation, I don’t believe it to be a far-fetched conspiracy theory. While the DOL’s Employee Benefits and Security Administration division (EBSA) is a public service, it is also a business designed to serve the public interest, and which has come under intense scrutiny as a result of numerous financial debacles. So, what does it all mean to a financial advisor in 2016?

Following the advice of my crystal ball, I suggest that every advisor should expect:

  1. A new fiduciary definition to be finalized before mid-2016.
  2. IRA rollover advice to fall under this new definition.
  3. E&O premiums to increase to cover expanded fiduciary services.
  4. It will be more difficult to roll money from a retirement plan to an IRA.
  5. A new round of legal fees for amendments to your service agreements and disclosures.
  6. New disclosures to be required likely resulting in more work for less pay.
  7. Communications and sales presentations to clients and prospects will change.
  8. An increase in ongoing service responsibilities.
  9. Compensation practices will change.
  10. Advisors to be forced to become more intimate with ERISA.

If my predictions come true, the party is over for the advisors that have avoided learning ERISA’s fiduciary idiosyncrasies and terminology. One thing I have learned as an expert witness on numerous high profile multi-billion dollar plans, is that regardless of the resources available, if you don’t spend the time learning the rules you are likely to break them. Broken rules create liabilities regardless of good intentions.

So, a word to the wise. Start the learning process now. As Alexander Graham Bell once said, “Before anything else, preparation is the key to success.” If you want to survive and flourish under the new regime, be prepared.

If you would like more information, contact me at dwitz@fraplantools.com.

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Welcome to
Heart of Advice

a new source of expert insights for
financial professionals.

Get Started

Tips specific to the eMoney platform can be found in
the eMoney
application, under Help, eMoney Advisor Blog.