Investor Education Would Be Difficult Under DOL Standard, Lawyers say

Advisors will have a tough time promoting products such as annuities in educational materials without potentially violating the Department of Labor’s proposed fiduciary standard, industry lawyers say.

The investment materials that would potentially be subject to the new standard include plan information, general investment information, asset allocation models and interactive investment materials, according to lawyers at Sutherland, Asbill & Brennan.

Lawyers and brokers are already telling their clients that they will have to modify the way they promote their products under the current proposal if they don’t want to be put at risk for violating the “put the customer first standard” imposed by the DOL proposal.

At the same time, the proposal will allow information to be given, for example, on retirement plan distribution forms and retirement risks, such subjects as longevity risk, to potential customers without subjecting the adviser or other intermediary to the fiduciary standard.

These additions were drawn from comments solicited by DOL and the Treasury Department on the use of annuites in defined contribution plans and are consistent with developing policy encouraging the use of these types of investment, Sutherland lawyers said.

A key example, said Fred Reish, a lawyer at Drinker, Biddle & Reath, is that advisors and others would be prohibited from including specific investments (that is, mutual funds) in the asset allocation models currently used in education brochures and other advertisements by brokers.

Because of that, Reish said, “it would be more difficult under the new rules for participants to implement their education.”

Reish cautions that participants would need to look at each asset category in the asset allocation model and then they would need to figure out which of the plan’s investment options fit in that category. Only then, Reish said, could participants actually show the education materials.

“Practically speaking, that probably means that a lot of participants won’t use investment education in the asset allocation models,” Reish said.

InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].

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InsuranceNewsNet Washington Bureau Chief Arthur D. Postal has covered regulatory and legislative issues for more than 30 years. He can be reached at [email protected].