Post DOL Fiduciary Rule Regulatory Challenges

The DOL Fiduciary Rule is dead. All we know is that something will replace it, someday. Maybe. As this article from InvestmentNews points out, that leaves advisors in a state of regulatory uncertainty. And given the recent market volatility, the article mentions an important point: that if your IRA Rollover clients experience a suboptimal outcome and second guess their rollover decisions, there could be additional risks to the advisor.

Other than avoiding rollovers completely (which really isn’t an option at all), how can advisors conduct business in a state of regulatory ambiguity? Many of our largest clients are treating rollovers as if the rule is still there. When the DOL rule was struck down, we thought that many of our clients would relax the compliance procedures that were put into place in order to conform with the rules. But other than the rare exception, that has not been the case at all. In fact, our largest client subscribed to our IRAFiduciaryOptimizer software after the DOL Rule had been vacated and rolled the software out to thousands of advisors. They rationalized that the cost of compliance is far less than costs associated with defending litigation and that our software went a long way to providing oversight and in creating a repeatable process that would document decisions in a way would compel advisors to make the right decisions regarding client rollovers.

So our advice is to treat the DOL Rule like our largest clients: treat it as it stood prior to being vacated. It really wasn’t that onerous. If you don’t want to purchase compliance software to help streamline client rollovers, you really should have a documented process in place. We have a free checklist that you can use that we created for advisors looking for guidance in creating your own process. The key sections of the questionnaire are as follows:

  1. Fees and Expenses Associated with The Existing Plan
  2. Examination of Investments, Fees and Expenses Associated with the Proposed IRA
  3. Levels of Services and Investments Available in a Rollover
  4. Risk Suitability
  5. Consideration of The Levels of Services and Investments Available Under the Existing Plan
  6. Fee Reasonableness

Our software takes you through these steps in a user-friendly interface that utilizes our vast retirement database to help with the onerous task of collecting the data that is critical for an advisor to make an assessment. This includes the ability to lookup retirement plans fees and holdings (when available), a risk assessment of the participant allocation in their 401k plan against what the advisor is proposing, and an analysis of fees, services and investment options. Perhaps most importantly, the rollover suitability process ends with a document that included advisor comments on the rollover recommendation with details of the analysis. This can be reviewed with clients, if desired, or used to satisfy internal documentation requirements. This document can be stored locally or on network drives, and we keep a copy of it in our built-in compliance portal.

Of course, we would love for everyone to use our software. But at a minimum, if you haven’t created a process that is repeatable and standardized for you to use when making your rollover decisions, we encourage you to do so. This includes formalizing the process of informing your clients of the results of your analysis and the pros and cons to the decision to rollover, stay in their existing Plan, or roll the assets into their new 401k Plan (if applicable). We believe that this will go a long way in helping navigate the murky regulatory environment in a post DOL Fiduciary Rule world.

3 Responses

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