As the transition period continues for implementation of the DOL’s fiduciary rule, advisors must carefully pay attention to how they assist investors with rollovers if they don’t want to wind up in a regulatory snafu.
“Rollovers are probably the area that will be scrutinized the most,” said Jason Roberts, the founder and CEO of the Pension Resource Institute. Roberts, also the founder and managing partner of the Retirement Law Group, made the remarks during a recent webinar.
Three regulators—Finra, the Securities and Exchange Commission and the Department of Labor—are currently looking at rollover transactions, noted Roberts. If advisors take steps and have a process in place to comply with the DOL requirements, which are the most stringent, he said, “You don’t have to look over your shoulder and wonder whether it would satisfy a different regulator.”
Advisors must understand and document whether the four different acts associated with rollovers are in their clients’ best interest, he said. “One is whether to take the distribution; number two is in what amount; number three is in what form; and number four, which can trip up even RIAs,” he said, “is to what destination.” This refers to where the proceeds should be reinvested.
Advisors must be able to demonstrate that they are taking reasonable steps and working diligently toward compliance, added Roberts.
The webinar, which focused on the transition period of the DOL fiduciary rule, was held by RIA in a Box, compliance consultants for RIAs.
The DOL fiduciary rule (which became effective in June 2017 and is expected to be finalized on July 1, 2019) expands the definition of investment advice and makes it easier for advisors to find themselves playing a fiduciary role.
Fred Reish, an ERISA attorney and partner at Drinker, Biddle & Reath who also participated in the webinar, dismissed the notion that the DOL rule requires investors to pick the best investment out there for their clients.
“That’s an urban myth,” said Reish. Instead, he said, the DOL wants advisors to engage in a prudent process to select good quality, reasonably priced investments.
He reminded attendees that the impartial conduct standards, which he described as “the heart and soul of the transition rules,” must be complied with immediately. This includes giving advice that is in the client’s best interest, charging reasonable compensation and making no misleading statements.