The fear among product providers and their broker/dealer sales force is palpable. In fact, congressional opposition to the proposed rule is already lining up even before its contents have been announced.

The fear appears to be justified. In an interview in the Fall 2013 Employee Benefits Committee Newsletter, Phyllis Borzi, assistant secretary of Labor for Employee Benefits Security at the Department of Labor (DOL), criticized brokers who “sell products that financially benefit themselves without considering whether those investments are really in their clients’ best interests.” However, the DOL’s own policies may have driven many retirees into the waiting arms of the very brokers whom Borzi now disparages.

Specifically, the Deseret opinion issued in 2005 by the DOL dissuaded many investment advisers—who had already been working within the plan and educating participants regarding their investments in the plan for many years—from counseling participants on their rollover options into individual retirement accounts (IRAs).

In fact, many retirement plan professionals concluded from Deseret that they would be engaging in a prohibited transaction if they served as the plan’s investment adviser or manager and also assisted participants in rolling their plan assets into an IRA – even if it was done at the specific request of the participant.

In response, ERISA (Employee Retirement Income Security Act) attorneys have developed all sorts of workarounds in an attempt to provide legal cover to plan advisers who wanted to assist participants with these rollovers. What has been missing, though, is a common sense response to Deseret.

In that document, the DOL correctly noted a plan fiduciary “must act … solely in the interests of the participant.” However, what if assisting the participant in rolling his or her assets into an IRA managed by the adviser is in the participant’s best interests? How could that be a violation of the adviser’s fiduciary duty? Could it in fact be argued that failing to assist participants in making those important decisions – and leaving them vulnerable to those seeking to make a quick product sale – is the actual derogation of the plan adviser’s fiduciary duty to the plan’s participants?

FINRA’s Caveats

Enter FINRA, which on December 30, issued Regulatory Notice 13-45 entitled “Rollovers to Individual Retirement Accounts.” In that document, FINRA noted a number of factors that plan participants must consider when deciding whether to roll plan assets into an IRA, including several that an adviser already working with the plan would know.

For example, can the participant leave the assets in the plan after a separation event? If so, what investment options are available inside the plan? Also, what type of individualized investment advice is offered within the plan, and at what cost?

FINRA also pointed out an inherent conflict of interest: a broker can collect a commission only by recommending that the participant roll money out of the plan and into a product the broker is selling. As a result, the notice stressed that brokers must ensure their recommendations to plan participants regarding rollovers comply with suitability requirements based upon the participant’s long-term interests. Lest anyone think this was simply a friendly reminder, the self-regulatory organization warned its members, “The recommendation and marketing of IRA rollovers will be an examination priority for FINRA in 2014.”

So what does all of this mean for retirement plan advisers?

Well, this is speculation on my part, but what if the FINRA notice provided insight into the content of the DOL’s upcoming “fiduciary rule”? The idea is not that farfetched. In a December webinar hosted by FINRA to outline regulatory priorities for 2014, insiders noted they were in “regular communication” with the DOL regarding the issue.

Silver Lining?

Is it possible the DOL now sees a plan adviser’s fiduciary status as a benefit rather than a liability when it comes to assisting participants with rollover options? If that change in focus were to occur, retirement plan advisers would be back in the driver’s seat when it comes to counseling plan participants who are nearing retirement.

However, it is clear that this additional opportunity would bring additional scrutiny. In fact, even if I am incorrect about the DOL’s change in perspective, there can be no doubt that regulatory concerns in FINRA’s notice will likely be adopted as the minimum standards for determining the appropriateness of recommendations regarding participant rollovers. As a result, it is important that plan advisers adjust to this new reality.

Specifically, plan advisers who want to assist participants with rollover options would be wise to develop the type of written supervisory procedures referenced in the FINRA notice. Those procedures should outline the information the adviser will consider in determining whether it is in a participant’s best interests to roll assets out of the plan and, if so, how the adviser will determine which investment product(s) are best suited to meet the specific long-term interests of a participant’s unique situation.

Any evidence of a one-size-fits-all approach or preferred product provider arrangement would likely be regulatory red flags. Instead, plan advisers should strive to use their broad understanding of ERISA, tax, estate planning, financial planning, wealth management, and product expertise to demonstrate their recommendations are truly based upon each participant’s best interests.

All of this may present a daunting set of requirements for retirement plan advisers. Then again, who is better equipped to provide advice to plan participants than the plan adviser who has been guiding them for many years?

Phil Troyer is an attorney and vice president of compliance at Bukaty Companies Financial Services (www.bukaty.com), which has locations in Kansas City, Denver and Spokane. The firm is managed by Vince Morris, who was included in PlanSponsor magazine's list of Top 100 Plan Advisers and twice nominated for Adviser of the Year. Phil can be reached at ptroyer@bukaty.com.

This article is not intended to provide legal advice and should not be relied upon as such.