In the article “Reminder: Rollovers Are Fiduciary Advice Under New DOL Rule,” benefits and executive compensation partners Brad Campbell and Fred Reish describe how a rollover likely implies a continued advising relationship per the Department of Labor’s (DOL’s) new rule. ThinkAdvisor also featured takeaways from a firm webinar about the rule, which took effect on Feb. 16.
“People have made the argument that rollovers cannot be fiduciary advice because it’s a one-time recommendation,” said Campbell. The Trump administration guidance that the Biden administration has allowed to stand, at least for now, says “that’s not quite correct,” he added.
However, “If the answer is, ‘Yes, we both intend to meet in the future,’ then DOL views it as an anticipated ongoing relationship. In other words, the beginning of an advice relationship that is fiduciary from the initial advice,” Campbell explained.
Campbell also detailed how it raises “a lot of new issues because now most rollover recommendations, at least a significant fraction of them, based on facts and circumstances under this guidance, likely become ERISA fiduciary [advice] and … you have a conflict; you have a prohibited transaction if the recommendation to the rollover is going to affect your compensation.”
Reish said, “most investment advisers who recommend that a participant take a distribution and roll over with them are going to satisfy” the conditions of the DOL’s exemption regarding compensation. “Unless there’s some reason you won’t, I think you have to start off thinking you will, and you’re going to have to satisfy the conditions of the exemption.”
A week ago, “we didn’t think it [the Trump PTE] was going to come into effect, and if you make a rollover recommendation tomorrow, it is the rule. So how can you possibly comply with all these complex details and conditions?” noted Reish. He said that the DOL’s nonenforcement policy gives advisers until Dec. 20 before some of these rules must be followed.