Firms that want to opt out of the Department of Labor’s retirement rollover rule and just offer education to investors instead of specific rollover recommendations are still grappling with compliance issues, according to a panel of Faegre Drinker attorneys.

Compliance is crucial since DOL enforcement of the rule goes live February 1 after two delays, Faegre Drinker counsel Joan Neri told audience members who tuned into the virtual panel discussion, entitled “DOL PTE 2020-02: Disclosures and Policies—Common Mistakes.”

“At this point, we have not heard or seen anything from the DOL that would indicate there is a further delay to enforcement,” said Neri, who added that the greatly expanded definition of “fiduciary advice” in the DOL rule applies to all registered investment advisors, broker-dealers and insurance representatives who decide they want to charge fees or commissions for rollover investment advice.

Both firms and their financial professionals can opt out of the rule by avoiding specific rollover investment recommendations and offering only education to prospective clients. Firms that decide they want to offer advice will need to meet all of the requirements of the extensive rule in order to avoid committing a fiduciary, prohibited transaction, best interest or conflict of interest violation

Attorneys also warned that anything Securities and Exchange Commission examiners find during exams will likely be turned over to the DOL for investigation and possible enforcement starting February 1.

“Clearly, if you’re SEC-registered and they come in, there is a high likelihood they will refer rollover violations to the DOL. That’s less likely with state examiners, who don’t have the same relationship,” Faegre Drinker Partner Jeffrey Blumberg said.

One of the biggest red flags firm attorneys are seeing at firms opting to take the education-only route is the failure to recognize when they’re making “implied recommendations” regarding investment strategies, according to Faegre Drinker Partner Joshua Waldbeser, a former attorney with the DOL’s Employee Benefits Security Administration.

The DOL allows firms and professionals to make “hire me” recommendations without triggering the rule, but if they tell investors, “I don’t want to make a recommendation, but if I were you, here’s what I would do with my money,” that will be viewed as a recommendation and trigger full application of the rule, Waldbeser added.

“The more individualized the communication is and the more data analysis involved the more likely investor communications are a recommendation,” Faegre Drinker Partner Fred Reish said.  “A leading DOL official has said if you provide a sample portfolio for example—like ‘here’s what we’d do for you if you came with us”—in his view that’s an implied recommendation.”

Reish said he is working with a team to develop compliant language for clients who want to avoid making implied recommendations. “What we do is a very sober and unbiased list of pros and cons of rollovers to the firms. There is no subjective discussion about a firm’s abilities to make investors money,” he said.

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