Steve Sokolic, an ERISA attorney with the Retirement Law Group in Redondo Beach, Calif., reviewed the new fiduciary mandate and noted several challenges the DOL rule could impose on advisors.
For one thing, advisors handling IRA accounts will be subject to a “reasonable compensation” standard, he said, “but no one knows what reasonable compensation is, really.” It depends on market pricing, the amount of monitoring an investment requires and the complexity of the product.
“Look at the value of your service,” Sokolic said. “It’s very important to talk about all the services you can provide” in order to justify the fees clients pay.
The DOL’s level-fee exemption for fee-based advisors who recommend rollovers “is not as simple as it seems,” Sokolic added, because advisors will have to get data on the retirement plan’s expenses and administrative rules to justify a rollover recommendation.
To comply with the rule, which becomes effective April 10, advisory firms will need to have policies and procedures in place, provide training for advisors, inventory impacted accounts, communicate the changes to clients and determine what exemptions are needed, Sokolic said.