Expect New DOL Fiduciary Rule by Summer's End: ERISA Lawyer

In addition, the court’s decision is an incentive for the Department of Labor to issue a new proposed regulation that specifically says that a rollover recommendation is a fiduciary act. However, the DOL has been very quiet about its work on a new fiduciary regulation.

Do you have any concerns now about advisors’ compliance with the fiduciary PTE?

I am concerned about smaller broker-dealers and investment advisory firms. I am also concerned about independent insurance agents. These rules — and PTE 2020-02 in particular — require significant work by the firms, as well as compliant processes by the individual advisors and agents. Larger firms, with their attorneys and compliance personnel, are well equipped to comply with the fiduciary and prohibited transaction requirements.

Most large firms have cultures where the home office can set policies and practices. But when you get to smaller financial service providers with just one or two or three financial professionals, the requirements are more burdensome and expensive. As a result, I am worried that there may be inadvertent noncompliance.

What’s the biggest issue for broker-dealers now, in terms of compliance?

It depends somewhat on the size and culture of the broker-dealer.

For all broker-dealers, I think it is challenging to ensure that all recommendations, including rollover recommendations, are made through a best-interest process and are, in fact, in the best interest of the retirement investor.

In addition, there is a requirement to mitigate conflicts of interest. In the broker-dealer world, almost all compensation is transaction based, which in turn means that it is conflicted. As a result, broker-dealers must have reasonable policies and procedures — as well as supervision — in place to reasonably ensure that the compensation is not motivating the individual representatives to make recommendations that are in their interest, as opposed to being in the best interest of the retirement investor.

For smaller firms, some of the other requirements are also burdensome. An example would be the annual retrospective review and report.