The Fifth Circuit also back in 2018 that the DOL’s approach was a “novel assertion” of the regulator’s power that was inconsistent with the ERISA statutory framework, which treats IRAs differently than ERISA plans, Reish added.
“Undoubtedly there will be a lawsuit filed against the DOL.That seems to be a way of the world these days,” the attorney said in an interview.
But by the time the lawsuit makes its way through the courts, most firms will have had to update their systems, practices and procedures, Reish predicted.
“I think we’re in one of those situations where everyone has to be in compliance for a year, two or three before this is solved. But you have to get in compliance, because if the DOL’s position is upheld by the courts, you may have a whole lot of prohibited transactions,” he warned. An alleged finding of noncompliance could mean DOL fines and even a potential lawsuit by a plan or participants.
In announcing the proposed rule, the Biden administration said the changes are necessary to protect investors from conflicted advice and "junk fees." The administration also said the rule will close a loophole in the Securities and Exchange Commission’s Regulation Best Interest.
Proponents of the rule, including the CFP Board, Consumer Federation of American and Institute for the Fiduciary Duty expressed agreed.
“We celebrate the work of the advisors who seek to do what is best for their customers. However, the outdated law does not prevent advisors from taking advantage of gaps in the regulations to steer their clients into high-cost, substandard investments that pay the advisor well but eat away at retirement investors’ nest eggs over time, the CFP Board said in a statement.
Plaintiffs to the victorious 2016 lawsuit, however, wasted no time saber-rattling their opposition to the proposed rule. Opponents include the Financial Services Institute, the the National Association of Insurance and Financial Advisors and the Securities Industry and Financial Markets Association.
“This is the fourth time since 2010 the federal government has tried to expand fiduciary requirements for advisors. This DOL proposal is particularly unfortunate, coming at a time when many Americans are concerned about their economic security and ability to prepare for retirement,” NAIFA CEO Kevin Mayeux said.