DOL Puts Rollover Changes on Fast Track: Lawyers
A section of the proposal that lays out whether financial professionals would be deemed fiduciaries — and therefore required to adhere to conditions aimed at protecting investors — is written in a very general way and could be interpreted in several ways, says Jasmin Sethi, the fund tracker’s associate director of policy research.
The proposal states: “[F]or an investment advice provider who establishes a new relationship with a Plan participant and advises a rollover of assets from the plan to an IRA, the rollover recommendation may be seen as the first step in an ongoing advice relationship that could satisfy the regular basis prong of the five-part test depending on the facts and circumstances.”
The language leaves “a lot of wiggle room,” Sethi says.
The proposal also doesn’t provide for a private right of action, she says. This means individual plan participants wouldn’t be allowed to sue an investor advisor or other financial professionals that relied on the exemption in a rollover transaction.
Enforcement of the exemption would be left up to the DOL. And while Reg BI requires brokers to act in the best interests of plan participants in a rollover, the “best interest” standard itself is “nebulous,” she says.
“There’s a lot here that’s left open to be determined based on enforcement [at] both agencies, both of whom have been pretty silent about how they’re going to investigate wrongdoing,” Sethi adds.