Back to the Fiduciary Future?
Jasmin Sethi, associate director of policy research at investment research firm Morningstar, is also studying the proposed regulation. Sethi says she believes the proposed rule “appears to be protective of investors, but it may not go far enough” to fully protect them.
“We are pleased to see that the DOL asserted that investment advice provided on rollovers from 401(k) plans to IRA accounts would be subject to Title I of ERISA,” Sethi says. “Further, in order to rely on the proposed exemption, investment advice fiduciaries would have to satisfy standards of impartial conduct, including a best interest standard, reasonable compensation and a requirement to not make materially misleading statements about investment recommendations. However, the devil is in the details.”
Sethi says the rule as proposed will not entirely clarify what constitutes fiduciary-level investment advice under ERISA, even with the emphasis being put back on the five-part test.
“We are concerned because the ‘regular basis’ requirement of this test excludes one-off transaction advice on a distribution or rollover,” she says. “For many individuals, such a transaction could be the beginning of a new investment advice relationship or may be the first time they are receiving investment advice at all.”