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You Can ’ t ‘ Legislate Good Behavior ’
Here ’ s what advisors really think about the DOL rule .
By Ben Mattlin
AS FINANCIAL PROFESSIONALS ANXiously anticipate the Department of Labor ’ s new fiduciary requirements , which President Joe Biden is expected to sign this spring , their attitudes vary greatly . Some look forward to the anticipated changes , while others foresee disaster . Still others are indifferent .
“ I am not as concerned about it impacting our advisory business since we already act as a fiduciary to our clients ,” says Amber Kendrick , vice president and retirement plan consultant at Procyon Partners in Shelton Conn . “ However , I do think it may impact the retirement plan industry .”
No one knows yet exactly what the final regulations will entail , but last October ’ s proposed draft version provides a pretty good idea . It ’ s expected to expand the scope of what qualifies as “ fiduciary ” advice and will likely close what the DOL regards as regulatory gaps that currently allow certain financial professionals to offer guidance that may or may not necessarily be in a client ’ s best interest .
If the final regulation is released in the spring ( which was expected when this story went to press ), it would update and expand who classifies as a fiduciary and redefine what counts as fiduciary advice . The Investment Advisers Act of 1940 requires registered investment advisors to act in the best interests of their clients under a “ duty of care .”
The Employee Retirement Income Security Act of 1974 ( ERISA ) holds retirement-plan administrators to what some consider an even more stringent fiduciary standard , requiring retirement advisors to meet a five-part test before they are held to that standard . That test says , in short , that the investment professional is rendering advice about the suitability of purchasing or selling an asset and providing such advice on a regular basis — so that the professional might be presumed to be acting in the client ’ s best interests .
But if the professional makes only a single recommendation , some critics charge , he or she is exempt from the fiduciary standard . The draft proposal would eliminate or tighten certain such exemptions .
The DOL has said the current web of definitions about what does and does not constitute fiduciary investment advice has too many loopholes , while the Biden administration said the new proposal is also designed to eliminate “ junk fees ” that are prevalent in the retirement investment advice business .
This isn ’ t the first time the DOL has attempted to modify ERISA . A 2016 measure required financial professionals to enter into contracts that would allow clients to theoretically sue for inappropriate advice . But two years later , the U . S . Court of Appeals for the Fifth Circuit struck that effort down , saying the DOL had gone too far and exceeded its authority . In 2019 , the Securities and Exchange Commission enacted Regulation Best Interest to
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