The Wall Street Journal turned to Benefits & Executive Compensation partner Fred Reish for insight on the Department of Labor (DOL)’s proposed new rule for retirement accounts that allows brokers and other types of financial advisers to provide fiduciary advice and still receive commissions in some cases. Reish shared his reaction on the proposed rule, which will align the regulation of retirement accounts with the Securities and Exchange Commission’s new standards, Regulation Best Interest.
In the article “Labor Department Proposes Fiduciary Exemption for Retirement Plans,” the Journal reports that the new DOL regulation will provide a way for brokers and registered investment advisers who serve as fiduciaries to investors in 401(k) plans and IRAs to earn commissions and other forms of compensation. Such compensation had been prohibited under the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA). According to Reish, this was because it could provide incentives for advisers to favor one investment over another to get a larger paycheck.
The Wall Street Journal noted that consumer advocates say that this regulation is weaker on consumer protections than the Obama-era regulation that the U.S. Court of Appeals for the Fifth Circuit struck down in 2018. Since that regulation was struck down, the definition of a fiduciary for retirement plans reverted to one that the Labor Department issued in 1975.
Reish said that the DOL made a change that will cause rollovers to be more heavily regulated. It is requiring advisers to act in the client’s best interest when recommending a rollover if the adviser provides ongoing advice about any of the client’s assets, rather than just the money in the 401(k) plan.
“That may seem like a detail, but it is really significant,” Reish said. “This year more than $500 billion will be rolled out of plans. It may be the greatest single source of new assets to retail broker-dealers. This means that rollover advice will become more heavily regulated.”