Those who show a "systematic pattern" of violating the Department of Labor’s new fiduciary rule can face a tsunami of penalties, including a 10-year ban on providing rollover advice, monetary penalties, punishing excise taxes and class-action lawsuits, according to attorneys.

The rule and prohibited transaction exemptions, which go into effect September 23, provide the only way advisors and insurance agents can accept commissions on rollover advice. For the first time, the requirements make just about any investment recommendation fiduciary advice, attorneys with the Groom Law Group said during a webinar last week.

“Violations come with massive excise taxes and potential civil money penalties," said Michael Kreps, a partner with Groom. The penalties are “a major hammer that they've got for enforcement.”

Among the specific legal remedies DOL lays out in the rule, firms must self-report to the IRS, pay 15% excise taxes on the assets involved in any rollovers found to violate the rule and make investors whole within 90 days of the discovery of the violation. In the case of independent insurance brokers who work with two or more insurers, insurers are excluded from fiduciary duty and the onus of compliance falls on the broker.

Those found to have a "systematic pattern or practice" of violating the exemptions or failing to correct prohibited transactions may incur penalties and excise taxes of as much as 200% of the assets that were improperly rolled over if the abuses aren’t addressed in a tax year, according to the DOL.

Advisors and companies may also be liable for legal and equitable remedies, including class-action lawsuits, attorneys said. Willful ERISA violations can even result in criminal prosecution, with the maximum criminal penalties including up to 10 years in jail and fines up to $100,000, according to the DOL.

Penalties don’t stop there, however. The DOL is also able to institute a 10-year ban on rollovers if an advisor or company that uses a prohibited transaction exemption engages in a systemic pattern or practice of violations. That includes engaging in a systematic pattern of failing to correct and report violations and pay prohibited transaction taxes, Groom lawyers said.

Kevin Walsh, a Groom partner, said the 10-year ban is “very concerning” because it gives the DOL the power to make advisors ineligible and only provides advisors with 60 days to schedule an appeals hearing.

The process gives advisors and agents little recourse and the agency the ability to say, “We are going to strip you of your ability to operate in the retirement space,'" Walsh said.

“That’s a very harsh penalty and hopefully in the litigation that is sure to follow and has started already, that will get toned down a little bit,” Carol McClarnon, a partner with Eversheds Sutherland, said during an InvestorCOM webinar on Friday. According to Eversheds, a 10-year ban would shut down some firms because more than 50% of firms’ new business comes from retirement plan rollovers.

The first lawsuit against the new rule was filed earlier this month by the Federation of Americans for Consumer Choice (FACC), a lobbying group for the insurance industry, and several insurance agents. They filed the challenge in U.S. District Court for the Eastern District of Texas and are seeking an injunction and to vacate the rule on grounds that it oversteps the authority Congress gave the DOL.

David Macchia, president and founder of Wealth 2K, a compliance firm, called the potential penalties for violations “massive."

"There is no arbitration requirement to protect insurance agents, so I assume the plaintiffs’ bar will be the enforcement mechanism of this rule,” Macchia said.

Parnham Nasseri, president of InvestorCOM, a firm that automates compliance for financial services firms, said that while he has heard some industry groups voice concern about class action lawsuits, “by and large the vast majority of our clients are asking how do we embrace this rule.”

Because companies must write annual retrospective reviews that are signed by a senior executive, it encourages them to audit rollovers, Nasseri said. As a result, he expects the process to “potentially mitigate inappropriate violations down the road.”