There’s a 15% per year excise tax tax that advisors or broker-dealers will get hit with every year until a correction is done. And if the correction is not completed in certain timeframes, namely when the first-tier excise tax is assessed, there’s a 100% excise tax, too.
The excise tax “is designed to be very punitive, to prevent advisors and fiduciaries from just committing violations and accepting excise taxes as a cost of doing business,” Waldbeser added.
One of the reasons the nonenforcement policy was extended was to allow data providers more time to develop their systems to provide plan information to financial institution for purposes of evaluating rollovers.
Retirement plan data is critical because the rule requires fiduciary advisors and all financial firms recommending a rollover to analyze investors’ current plan and IRA assets, costs and performance before they can recommend rollovers that are in investors’ best interest.
Another reason for the nonenforcement extension is that more than 50% of broker-dealer and registered investment advisory firms reported in September that they are still in the earliest days of planning to comply with the rule, despite the looming deadline, according to an informal poll from InvestorCOM.
“In terms of relief, the largest financial institutions have made good progress towards, but of course, additional time is always welcome,” Faegre Drinker’s Fred Reish, a partner at the firm, said.
“The mid-market is not as far along,” he said, “so the additional time will be very helpful to them. That’s also true for some smaller RIAs and broker-dealers, but I am concerned that some smaller firms don’t realize that the new rules will have a material impact on them. The extended time limit will only matter for them if they recognize what needs to be done and how much work it is. Hopefully, that will be the case,” Reish said.