Fiduciary Corner

Why you should still take the fiduciary high ground on 401(k) rollovers

Despite death of DOL fiduciary rule, regulators continue to look at rollover advice from advisers

Aug 14, 2018 @ 2:30 pm

By Blaine F. Aikin

Only in Washington, some might say, can you find a regulation that for all intents and purposes is dead and buried yet still lives on.

The Fifth Circuit Court of Appeals issued its mandate to vacate the Department of Labor fiduciary rule in June, but guidance issued by the DOL the month prior allows at least part of the rule to continue to apply. This anomaly has some profound ramifications for retirement advisers dispensing rollover advice.

The May guidance, Field Assistance Bulletin No. 2018-02, establishes a policy that the DOL will not pursue enforcement claims against ERISA fiduciaries that continue to work earnestly to comply with provisions of the rule that went into effect last year, even though that rule is now gone.

Many firms have devoted significant resources to comply with the fiduciary rule generally, and the best-interest-contract exemption specifically. They have accepted fiduciary accountability and the obligation to apply impartial conduct standards in exchange for the ability to receive nonlevel (conflicted) compensation. The DOL determined that "financial institutions should be permitted to continue to rely upon the temporary enforcement policy" and expressed its conviction that continued "temporary enforcement relief is appropriate and in the interests of plans, plan fiduciaries, plan participants and beneficiaries, IRAs, and IRA owners."

Level-fee advisers also benefit from the DOL's temporary non-enforcement policy because the BIC exemption creates a safe harbor that allows them to provide advice to a plan and also provide rollover advice to the plan's participants. Pre-DOL fiduciary rule regulations created a barrier generally preventing a plan adviser from providing rollover advice to participants if doing so would result in additional compensation.

Before the DOL fiduciary rule took effect on June 9, 2017, plan advisers were at a disadvantage when it came to rollovers. Prevailing guidance stemming from DOL Advisory Opinion 2005-23A stated that an adviser not providing advice on plan assets would not become an ERISA fiduciary for "merely advising a plan participant to take an otherwise permissible plan distribution, even when that advice is combined with a recommendation as to how the distribution should be invested."

However, the regulatory guidance went on to say that, for those who were already plan fiduciaries, rollover advice was deemed to be a fiduciary act. The only ways for a plan adviser to avoid a prohibited transaction were for (1) the participant to have already made the decision to take a distribution on his or her own, or (2) the adviser to only recommend and accept a rollover after conducting an analysis showing it is in the client's best interest to do so — and then refrain from accepting higher compensation on the assets withdrawn from the plan.

The problem with option (2) is that an adviser will generally earn higher compensation on the assets when they are held in an IRA than they would if the assets remained in the plan.

That is why the DOL's nonenforcement policy is critical to the many ERISA fiduciary plan advisers who provide rollover advice to participants. FAB 2018-02 allows them to rely on the BIC exemption and apply impartial conduct standards as a safe harbor even though that capability emanates from a now nonexistent rule.

Keep in mind that this is a temporary policy. The DOL is reportedly continuing to work on new regulations and guidance dealing with the fiduciary obligations of retirement plan advisers. It seems likely the Labor Department will eventually restore a BICE-like level-fee exemption that fiduciary advisers can rely upon, perhaps including provisions that coordinate with Securities and Exchange Commission fiduciary rulemaking.

The DOL, SEC, Finra and state insurance commissioners all have focused heightened regulatory attention on rollover advice following a 2013 GAO report highlighting abusive practices in this area. Notwithstanding the 5th Circuit's decision, regulators are likely to continue making rollover advice a priority for examination and enforcement activity.

To help insulate themselves from uncertain regulatory requirements, retirement advisers would be well-served to take the fiduciary high ground by always adhering to impartial conduct standards. These standards align to the basic fiduciary duties of loyalty and care by requiring advisers to act in the client's best interest by disclosing material conflicts of interest, avoiding misleading statements, making prudent investment recommendations and charging only reasonable compensation.

Doing so will serve both the adviser's and client's interests throughout the relationship.

Blaine F. Aikin is executive chairman of fi360 Inc.


What do you think?

View comments

Recommended for you

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Upcoming Event

Oct 23


Women Adviser Summit - San Francisco

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


The importance of a diverse team

Clients, advisers, and even communities are telling firms that yes, diversity within the advisory community is important.

Latest news & opinion

Joe Duran has a game plan, and anyone can play

The CEO of United Capital built a formula for holistic financial planning that any firm can tap into — for a price.

LPL video about private equity looks like a swipe at Cetera

Recruiting video warns about potential consequences for advisers when a PE firm buys a broker-dealer.

Ladenburg chairman Phillip Frost steps down

The SEC charged Frost with fraud earlier this month.

Envestnet Tamarac partners with Schwab, TD on digital account openings

Auto-filling documents designed to make onboarding more efficient for RIAs and more convenient for clients.

Wells Fargo plans to cut staff up to 10% within next three years

Bank is struggling to cut spending amid regulatory fines and higher legal costs stemming from scandals.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print