Advisors Stumbling on DOL Rule Compliance: Analysts

The headlines trumpet the Department of Labor fiduciary rule being delayed, but brokers and advisors need to remember the rules that have already taken effect.

From what Drinker Biddle & Reath lawyers are hearing, many brokers and advisors aren't remembering those rules. As a result, they are exposing themselves and the firms backing them to fiduciary violations.

"The area that I’m most concerned about are recommendations for distributions from plans and rollovers to IRAs. That is the one area that applies to RIAs as well as broker/dealers," said Fred Reish of Drinker Biddle, speaking during a Tuesday webinar. "Just in talking to people in the industry, I’m concerned that folks are short-circuiting the process."

In November, the DOL published an 18-month delay of the most onerous aspects of the Obama-era fiduciary rule -- the exemptions that regulate the sales of popular annuities. Previously, the Trump administration assured the industry that it would not be enforcing any part of the rule that did take effect as long as firms were making a good-faith effort to comply.

But these moves have contributed to a relaxed attitude that could invite trouble for advisors and firms, said Bradford P. Campbell, an attorney at Drinker Biddle and former head of the Employee Benefits Security Administration, the department responsible for the fiduciary rule.

The initial requirements of the DOL rule took effect June 9. They require anyone selling financial products into retirement accounts to adhere to basic fiduciary standards: make "best-interest" recommendations, make no misleading statements and accept only "reasonable" compensation.

"I haven’t seen DOL enforcement activity where they’re going out into the industry and going after people on how they’re complying with this rule yet," Campbell said. "That doesn’t mean that isn’t coming. The further we get away from June 9, the harder it is going to be to justify not having adopted some of the guidelines that are out there."

Plenty of Confusion

Distributions from plans, including rollovers and required minimum distributions, are all subject to basic fiduciary standards.

Plenty of confusion remains about this basic fact, Campbell said.

"Even if you’re telling someone 'Hey, you’ve got an RMD coming up. Let’s use it to do X,’ that would be subject to the fiduciary rule how it’s written, regardless of what X is," he explained. "X could be a standard life insurance purchase apart from retirement planning.

"But if it’s made while these assets are still in the plan and the distribution hasn’t been taken yet, then it’s going to be subject to this rule."

Furthermore, the burden of proof -- should a recommendation be challenged in court -- lies with the advisor, Reish noted.

"The burden of proof is on the advisor, the RIA, the broker/dealer, to show they complied," he said. "Therefore, you need documentation. That’s a huge difference from traditional thinking and processes have to be documented."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].

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