After seven years, one reintroduction and whole lot of confusion and uncertainty, will the fiduciary rule actually be implemented on June 9?
While there’s no way to know for certain, all signs point to yes, according to fiduciary big Fred Reish. In his presentation to attendees at Fi360’s annual conference in Nashville Monday morning, the partner with law firm Drinker Biddle said the most likely barrier, the Administrative Procedures Act, requires a notice and comment period of 60 days.
Extraordinary circumstances could possibly override the Administrative Procedures Act, yet it’s unlikely any sort of stay would stick, as a rule so thoroughly vetted would almost certainly not contain anything that could be defined as “extraordinary” (at least not at this stage).
There will “no doubt be changes to the rule” between June 9, 2017 and January 1, 2018, but Reich believes they will be minor, with the exception of the Best Interest Contract Exemption (BICE).
The session, very descriptively titled “The regulation of recommendations for plan distributions and rollovers and for transfers of IRAs” addressed the “inherent conflict of interest in accepting a rollover,” as 12b-1 fees and commissions are compensation from a third parties. A level fee avoids that conflict, but it must be “truly level,” in that there are no additional sources of compensation.
“A key issue with rollovers is who made the decision to initiate the rollover,” Reish explained. “Was it solicited or unsolicited? In either case it should be documented, and any objections should be met with unbiased education.”
It means the new paradigm moving forward will be more relationship-based due to the shift to “clean” shares stripped of fees and commissions. Also, FINRA will increase (and has increased) it’s focus on suitability issues as they relate to rollovers.
Interestingly, regulators will not only investigate where the rollover moved to, but where it came from. It’s therefore increasingly incumbent on the advisor to justify why the assets where rolled out of the plan before any money moves, a burden that could prove difficult when attempting to get necessary data and information from the participant, or their advisor.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
