“My concern is that many smaller and midsize investment advisor and broker-dealer firms don’t realize that this rule will apply to them. Even if they start today, it would be a rush to get into compliance by December 21.”
Some of the smaller RIA firms are developing an education-only approach, where they don’t make recommendations and try to sidestep the fiduciary requirement, Reish says. If an investor decides to open up an IRA with the firm, some financial professionals may believe they can then offer investment recommendations via the already-existing IRA without triggering the rollover prohibited transaction exemption, but that remains to be seen, he adds.
The Insured Retirement Institute (IRI) and FSI are currently in talks to consider asking the DOL for an extension of the nonenforcement bulletin past December 21. That would give their members more time to meet the requirements.
“Our members are working diligently to implement the [prohibited transaction exemption], but we do understand from them the time line is tight,” says FSI’s Traxler. “I think if the correct coordination and communication takes place and firms are given time to accurately implement the PTE, there is no reason to believe investors will not be well served.”
Most of FSI’s members are dually registered, so they can provide fiduciary advice. They just need time to properly implement system, compliance and education training for a brand-new rule that just passed in February, Traxler says.
“We’re four and half months out from the deadline,” says Jason Berkowitz, the chief legal and regulatory affairs officer at the Insured Retirement Institute, which represents both insurers and broker-dealers that offer annuities. “There is a ton of work that needs to be done and some need for consideration if an extension may be needed or appropriate. We are exploring that right now. We haven’t made the decision. We are still in the fact-gathering stage,” he says.
He hopes an extension could be broached with the DOL through “friendly conversation.” “I think what we are seeing is that despite everyone’s best efforts, there are still some significant challenges regarding folks trying to make sure that they have some clarity around when they can make recommendations,” Berkowitz adds.
For fiduciaries, the DOL rule “was really nothing new,” says the Investment Adviser Association’s Barr. “They have been using these principles for the last 80-plus years. They’re very comfortable with the interpretation of what their duties are. What might be a new step for them is the documentation that is likely to be expected by examiners to document their steps behind making recommendations.”
Really smart firms will use the fiduciary rule to show value, adds Morningstar’s Szapiro. “They’ll use it to say, ‘Here’s why you want to work with us.’ You can’t just say, ‘We offer more asset classes.’ You have to be able to show through analysis that you are offering better advice or better services that are able to meet individual investor goals.”