DOL Rule: Firms Should Prepare For The First Lawsuit

Agencies and financial services firms are making a mistake in preparing to comply with the Department of Labor fiduciary rule, a speaker at the NAIFA Conference said.

Instead of preparing to comply with the rule, agencies and firms should be preparing for the first lawsuit that stems from the rule, Don Trone said during a workshop on "The New World Under the New DOL Rule."

Trone is founder the CEO of 3ethos and presenter of the workshop aimed at bringing attendees up to speed with what they need to do to comply with the new rule. Following the workshop at the NAIFA Conference, NAIFA will make the educational program available to its state and local associations.

Trone ran down the list of what advisors need to know to comply with the rule, including how they will be paid under the new rule, what types of compensation are prohibited, and the various exemptions. One of the most important aspects of the rule, he said, is that almost everyone becomes a fiduciary advisor. "If you think you may be a fiduciary, assume you are, and act accordingly!" he said.

Trone described a number of flaws in the rule, including its 11 different exemptions. Under these exemptions, he said, a bank teller can tell a customer to take their 401(k) account and put it into a certificate of deposit and not be subject to the rule. However, that same customer can walk across the bank lobby and have the bank's broker give the same advice, yet that broker would be subject to the fiduciary rule. "So under this rule,  the bank teller can advise but the broker cannot," he said.

Another aspect of the rule with which Trone found fault is in the Best Interest Contract required disclosures. Under the rule, the financial institution must disclose whether or not ongoing monitoring will occur. "The question is whether the financial institution will do the ongoing monitoring or will they just set it and forget it? This part makes no sense," he said.

The bulk of the workshop was spent reviewing case studies and determining the best course of action to take with various hypothetical client situations involving retirement advice. In addition, attendees reviewed a five-step model to communicate an appropriate fiduciary structure.