Bradford Campbell of Drinker Biddle speaks on Newly Proposed DOL Fiduciary Rule

Last week, CDM Retirement Consultants and Northwest Plan Services participated in a panel discussion event, hosted by John Hancock and featuring Bradford Campbell, Esq from the law firm of Drinker Biddle.  Brad is the former Assistant Secretary of Labor for Employee Benefits and former head of the Employee Benefits Security Administration.  He is a nationally-recognized figure in employer-sponsored retirement plans, is the author of the 408(b)(2) and the 404(c) regulations, and ERISA’s former “top cop.”  The majority of the discussion revolved around the  DOL’s recent proposal to expand the definition of fiduciary advice.  The re-proposed rule, which the DOL issued along with a fact sheet and FAQs  discards the current 5 part test for who is a plan fiduciary and defines a fiduciary as one who receives compensation for advising a plan, a participant, a beneficiary or an IRA owner about certain investment matters.

Among Brad’s thoughts:

  • The proposal as written, especially with respect to levelized compensation in any move from a 401(k) to IRAs, will have the effect of severely restricting many well-established practices by broker-dealers and insurance brokers.  Sound theory; challenging in practice.

 

  • The “best interest contract exemption” will still permit commissions and revenue sharing so long as they are disclosed, but given how poorly (read: confusing) the existing disclosure rules have been implemented by the financial industry thus far, “BICE” has its work cut out for it.

 

  • Significant push-back is expected by the financial services industry, especially in regards to applying the fiduciary standard to IRAs, where account balance are often very modest, potentially depriving those account holders of needed, specific investment guidance.

 

There are miles to go before these issues are ironed out and final regulations are released.  While few can argue that disclosure, transparency, and putting the interest of clients above all shouldn’t be sought, it’s the practical application and unintended consequences of such regulations that are so nettlesome.   At this point, there are no conclusions.  The thoughtful retirement plan advisor will monitor the situation very closely and begin to think about the impact of these proposed regulations to your practice.

Tom Rouse