Even if a provider creates a compliance system to comply with the department’s now-vacated Obama-era DOL rule and has been observing the terms of the department’s temporary enforcement policy in other aspects of its business, applying the system to rollovers “is optimistically a 12-month process for most providers. However it chooses to proceed substantively, DOL has exposed financial services providers to unwarranted legal risk for which it must provide a workable fix,” Eversheds Sutherland warned.
The law firm said for now it was leaving aside “the prospects of whether the DOL will be able to prevail in its interpretation” to focus on possible compliance alternatives if the DOL’s interpretation stands, using these steps:
• Is it possible and appropriate to assist with rollovers without taking on ERISA fiduciary status?
• If not, is it possible and appropriate to neutralize any conflict of interest embedded in the rollover advice?
• If not, is there an applicable ERISA prohibited transaction exemption that provides conflict of interest relief?
In guidance announcing its position, the DOL said there are cases where rollover interactions do not rise to the level of fiduciary advice. For instance, merely executing a rollover at the request of a retirement investor does not result in fiduciary status. “If no recommendation is provided, by definition, there cannot be fiduciary investment advice,” Eversheds Sutherland said.
Firms that provide education only or have a business model that may not confer a fiduciary status, such as an insurance company that makes a single sale, may be able to avoid rising to a fiduciary level, they added.