Was 2015 the Year of the Fiduciary?

Looking back over a year of compliance coverage on www.planadviser.com, few topics match the volume of reporting filed on the Department of Labor’s (DOL) fiduciary rulemaking effort.

Heading into 2016 the DOL has clearly made real progress on getting new advice standards in place—much to the chagrin of retirement plan industry providers, who will be policed by the tightened regulations. The text of the proposed “conflict of interest” rule, as it’s now commonly called, emerged months ago and will soon be reissued in final form.

Those informed enough to guess about such things project final rule language will be published as soon as January or as late as March or April. It remains to be seen whether the final rule will factor in any of the tremendous volume of industry criticism (and, to a lesser extent, support) registered during several formal comment windows and in-person hearings; whether advisers will still be able to sell to qualified retirement plan clients on commission or other forms of variable compensation; or whether a given segment of advisers will have to start papering best interest contracts. Things should finally become clear as 2016 progresses. 

Immediately after the mid-August hearings the DOL appeared to double down on its tough-cop approach, yet later in the year Labor Secretary Thomas Perez hinted at the prospect of more flexibility in a final rule. Industry professionals, especially those on the business development side of the equation, believe the rule-as-proposed is far too restrictive, even punitive, towards an overwhelmingly upright group of companies and individual advisers.

PLANADVISER columnist David C. Kaleda, principal in the Fiduciary Responsibility practice group at the Groom Law Group in Washington, D.C., predicts most advisers will be at least functional fiduciaries by this time in 2017 or 2018 with respect to individual retirement accounts (IRAs), as well as tax-qualified 401(k) and 403(b) plans governed by the Employee Retirement Income Security Act (ERISA), unless major changes are made to the rule language. Perhaps most important for advisers in the new rule language, he says, is the Best-Interest Contract (BIC) exemption approach, which “represents a significant shift in the DOL’s philosophy regarding class exemptions.”

NEXT: More of 2015’s best from the magazine and online 

Columnists Fred Reish, chair of the Financial Services ERISA practice at the law firm Drinker, Biddle & Reath, and Joan Neri, counsel for the Employee Benefits and Executive Compensation group, agree that key aspects of the fiduciary rulemaking clarified in 2015 involve retirement plan distribution advice.

According to Reish’s and Neri’s interpretation, the proposal also “says you would be a fiduciary for recommending a distribution or advising a participant about the investment of assets to be rolled over to an IRA. Under a 2005 DOL advisory opinion (2005-23A), the department said these acts are fiduciary acts if the person making the recommendation is already a fiduciary to the plan. In that guidance, though, the DOL also concluded that, if a person is not already a fiduciary in that context, the recommendation would not be fiduciary advice. The proposal eliminates that distinction.”

For columnist Marcia S. Wagner, managing director of the Wagner Law Group in Boston, equally important is how the fiduciary proposal might impact advice around annuities.

The most recent news on the fiduciary rulemaking effort was perhaps more show than substance. After a great deal of partisan wrangling, Congress reached an agreement on a somewhat long-term budget deal that did not include riders that would have changed or otherwise delayed the DOL’s fiduciary rulemaking. 

For many Republicans and some Democrats in both the House and the Senate this was no small defeat, given the large number of bills and proposals forwarded and/or endorsed by legislators in 2015. It took mere days for new proposals to be introduced in the wake of the budget agreement, but they have little real likelihood of making it into law before the DOL can act.

Whatever happens with the rulemaking in 2016, you’ll be able to find the most up-to-date coverage at www.planadviser.com and in PLANADVISER print.