Watch Out for ERISAfication of All Retirement Money, Experts Warn IRI

Legal experts with retirement plan companies and broker-dealers on Monday warned of the “ERISAfication” of individual retirement plans if the U.S. Department of Labor’s (DOL) fiduciary rule proposal is adopted.

ERISAfication, a made-up term referring to the Employee Retirement Income Security Act (ERISA), governs many employer-sponsored retirement plans.

The public comment period closes July 21 and the financial advisor and broker-dealer communities are expected to ramp up their letter-writing campaign over the next three weeks. Hearings on the proposal are scheduled for August.

The proposal is among the most significant pieces of rulemaking to affect the financial advisory industry and Steve Saxon, chairman of the Groom Law Group, said that any attempt to change the DOL’s position on its proposed rule would benefit the industry “a thousand-fold.”

Legislative experts are under no illusion that the “DOL will dig in on this,” Saxon said during a three-day regulatory and legislative conference in Washington, D.C. Pushing back against the proposed rule is likely to consume groups representing financial advisors and brokers over the next several weeks and into the fall, he said.

Many in the financial industry see the proposed rule as the most important change affecting financial advisors doing business with retirement plans and individual retirement accounts (IRAs) since ERISA was passed.

Financial advisors have opposed the rule on the grounds that it is too sweeping and “unworkable.”

Regulators have proposed the rule to remove any potential conflict of interest among financial advisors, many of whom collect a commission for advising retirement plans into certain funds, and DOL’s proposal is supported by the White House. The proposal also affects insurance agents and advisors who sell products in retirement accounts or deal with qualified money.

Powerful organizations including the AARP and the Consumer Federation of America, which represent tens of millions of investors, back the proposal, saying that it puts the interest of investors and clients ahead of the financial interests of intermediaries.

Advisors contend that the rule will not only raise the cost of doing business but that it will drive away clients because of onerous disclosure requirements.

As lawyers and lobbyists dig into the details of the proposed rule, the breadth and the sweep of the rule is coming into sharper focus.

Experts at a three-day legislative and regulatory update sponsored by the Insured Retirement Institute weren’t shy about rallying support to oppose the proposal wherever they could.

Mark Quinn, director of regulatory affairs for Cetera Financial Group, said some parts of the proposal may allow for wiggle room, but others seem ironclad.

In some cases, there are questions about grandfathering existing relationships between an advisor and an individual retirement client.

Other rule interpretations make it clear that any interaction with a client – even so much as handing over a brochure – is likely to be subject to a fiduciary standard.

“Everything is advice unless you have a carve-out,” said Abigail Pancoast, chief counsel for Retirement Plan Services with Lincoln Financial Group.

What exactly will be included in carve-outs is likely to be the subject of heated negotiation between regulators and industry between now and the end of the year, and experts said they were looking for the DOL to propose a final rule by next spring.

Michelle Kelley, senior vice president and associate counsel with LPL Financial Inc., said disclosure requirements would mean big – and costly – changes to reporting infrastructures and platforms used by financial companies.

Companies would have to provide in-flows, outflows, assets and returns, all of which would mean big technology investments for many advisors.

“This is a really big deal,” Saxon said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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