The U.S. Department of Labor has indicated it will likely revisit its stance on advisors’ fiduciary obligations when they make rollover investment recommendations.

In fact, the DOL is indicating the prohibited transaction exemption called “Improving Investment Advice for Workers & Retirees,” or PTE 2020-02, which was approved in February, may be a placeholder while the agency re-examines rollover advice, according to an analysis from Dalbar Inc. The five-part exemption is designed to allow fiduciary advisors to accept commissions and other compensation normally prohibited to them without triggering ERISA violations.

The agency laid out some of its plans in two recent question-and-answer releases for advisors and investors.

“The department anticipates taking further regulatory and sub-regulatory actions, as appropriate, including amending the investment advice fiduciary regulation, amending PTE 2020-02, and amending or revoking some of the other existing class exemptions available to investment advice fiduciaries.” the agency said in the first of two new Q&As designed to help investors find the “right person” to give them investment advice.

Advisors would be wise to brace for changes, the Dalbar report said. “One never knows when there will be another reversal or a clarification," Dalbar President and CEO Lou Harvey said. "The resurrected five-part test could easily be killed again.”

The second Q&A details guidance for investment advice providers that want to rely on the exemption.

“The compliance-focused frequently asked questions provide assistance to financial institutions and investment professionals as they ramp up compliance with the exemption,” Ali Khawar, acting assistant secretary of labor for employee benefits security, said in a statement.

The DOL emphasized that the prohibition on rollover advice applies before, during and after a rollover, which is prohibited if there is compensation from a pre-existing relationship, or compensation expected from a future relationship, unless there is compliance with the exemption. “Advice to roll over plan assets can also occur as part of an ongoing relationship or as the beginning of an intended future ongoing relationship that an individual has with an investment advice provider,” the DOL said.

Disclosure of compensation conflicts is no protection in and of itself, the agency said. Unlike other regulations that offer relief when proper disclosures are made, PTE 2020-02 permits no such escape. Written statements disclaiming a “mutual” understanding or forbidding reliance on the advice as “a primary basis for investment decisions” may be considered in determining whether a mutual understanding exists, but such statements will not be determinative, Dalbar noted.

“Boilerplate disclaimers are insufficient to defeat the test, when the parties have a mutual understanding that the advisor is making an individualized recommendation upon which the investor can be expected to rely in making the investment decision,” Dalbar said.

Neither of the DOL documents provide guidance on how the DOL will determine "best interest" when an advisor recommends a rollover to clients. As a result, the agency is “silent on how advice providers are expected to determine what the best interests are for a particular investor. Unless it is assumed that all investor’s interests are identical (a ridiculous notion), a determination of best interest is required. In the absence of specific guidance, it is left to the best efforts of the advice provider to make the critical determination of what constitutes the best interest of each investor,” Dalbar said in its analysis.

Dalbar is offering a complimentary webinar for advisors that will attempt to clarify the new DOL Q&A releases on May 6. More information is available here.