Nearly three months ago, the Department of Labor (DOL) proposed new standards defining what fiduciary due diligence means. In a session at the NTSA 403(b) Summit in Nashville, NTSA immediate past president Susan Diehl and others explained how the rule affects IRAs and other investment options, while imploring members to get involved in the rulemaking process.
The session, “Fiduciary Focus, Good Intentions and Unintended Consequences,” highlighted how the proposed rules would create barriers between advisor and client that the rule’s authors may not have anticipated. To illustrate, it included this scenario having to do with IRA rollovers:
A client comes into your office and tells you that she has just received a note from her employer that, due to separation of service, she will have to decide what to do with the $150,000 in her 403(b) plan. Slam dunk, right? Simply roll over the funds into an IRA where the client (and you) will have control without the restrictions and expenses inherent in the 403(b) plan.
Not so fast. Under the proposed rules, instead of the easy slam dunk in the form of a simple rollover, an advisor would have to file a Best Interest Contract (BIC) Exemption that would acknowledge, in writing, the advisor’s fiduciary status, as well as an agreement to comply with all relevant laws and a host of other acknowledgments that would cost both time and money, creating a barrier for advisors to implement practices that used to be very easy to do.
Speaking at the day’s recap of three sessions — which covered auto-enrollment, the rise of robo-advisors, and the fiduciary rule — Diehl said that NTSA expects that a rule will be promulgated in some form, and that NTSA is focused on getting the Obama administration to see how important advisors are.
“We are coming with a list of teachers, retirees, who have a great story to tell about what their advisor did for them, and how their advisor got them to where they are,” she said. “They need to hear these stories; they all need to know how important the role of the advisor is.”
Diehl and the rest of the panelists at the session stressed that the proposal will define all IRA rollover and distribution advice as a fiduciary act, even if the rules as proposed exempt an advisor’s management of a governmental 403(b) or 457 plan itself. In addition, she lamented the “double standard” that exempts robo-advisor firms from having to file Best Interest Contract (BIC) exemptions — a carve-out that NTSA Executive Director Chris DeGrassi said was based on false assumptions on the part of the DOL.
“The Department of Labor is making a judgment call that the lowest possible cost has the highest possible benefit,” DeGrassi said, referring to the appeal of robo-advisors — that their fees are lower than their flesh-and-blood counterparts because investments are made using an algorithm. “How you get the DOL off of that, I don’t know that it ever happens. But we’re working on making it possible for you all to operate in the individual retirement space.”
The current deadline for submitting comments to the DOL is July 21. Anyone is welcome to comment here or by emailing, with “RIN 1210-AB32” in the subject line. Diehl said that NTSA, in conjunction with the sister organizations under the American Retirement Association umbrella, is remaining vigilant in attempting to modify the rule, and she implored those in the audience to get involved if they haven’t done so already.
“We want your input — we want you to email us, we want you to call us,” she said. “We are trying to work with the DOL to come up with what makes sense for advisors to have a Best Interest Contract Exemption, and what will cover advisors who want to be covered.”
For a deeper dive into the DOL proposed rule, visit NTSA Net’s fiduciary rule resource page.
The session, “Fiduciary Focus, Good Intentions and Unintended Consequences,” highlighted how the proposed rules would create barriers between advisor and client that the rule’s authors may not have anticipated. To illustrate, it included this scenario having to do with IRA rollovers:
A client comes into your office and tells you that she has just received a note from her employer that, due to separation of service, she will have to decide what to do with the $150,000 in her 403(b) plan. Slam dunk, right? Simply roll over the funds into an IRA where the client (and you) will have control without the restrictions and expenses inherent in the 403(b) plan.
Not so fast. Under the proposed rules, instead of the easy slam dunk in the form of a simple rollover, an advisor would have to file a Best Interest Contract (BIC) Exemption that would acknowledge, in writing, the advisor’s fiduciary status, as well as an agreement to comply with all relevant laws and a host of other acknowledgments that would cost both time and money, creating a barrier for advisors to implement practices that used to be very easy to do.
Speaking at the day’s recap of three sessions — which covered auto-enrollment, the rise of robo-advisors, and the fiduciary rule — Diehl said that NTSA expects that a rule will be promulgated in some form, and that NTSA is focused on getting the Obama administration to see how important advisors are.
“We are coming with a list of teachers, retirees, who have a great story to tell about what their advisor did for them, and how their advisor got them to where they are,” she said. “They need to hear these stories; they all need to know how important the role of the advisor is.”
Diehl and the rest of the panelists at the session stressed that the proposal will define all IRA rollover and distribution advice as a fiduciary act, even if the rules as proposed exempt an advisor’s management of a governmental 403(b) or 457 plan itself. In addition, she lamented the “double standard” that exempts robo-advisor firms from having to file Best Interest Contract (BIC) exemptions — a carve-out that NTSA Executive Director Chris DeGrassi said was based on false assumptions on the part of the DOL.
“The Department of Labor is making a judgment call that the lowest possible cost has the highest possible benefit,” DeGrassi said, referring to the appeal of robo-advisors — that their fees are lower than their flesh-and-blood counterparts because investments are made using an algorithm. “How you get the DOL off of that, I don’t know that it ever happens. But we’re working on making it possible for you all to operate in the individual retirement space.”
The current deadline for submitting comments to the DOL is July 21. Anyone is welcome to comment here or by emailing, with “RIN 1210-AB32” in the subject line. Diehl said that NTSA, in conjunction with the sister organizations under the American Retirement Association umbrella, is remaining vigilant in attempting to modify the rule, and she implored those in the audience to get involved if they haven’t done so already.
“We want your input — we want you to email us, we want you to call us,” she said. “We are trying to work with the DOL to come up with what makes sense for advisors to have a Best Interest Contract Exemption, and what will cover advisors who want to be covered.”
For a deeper dive into the DOL proposed rule, visit NTSA Net’s fiduciary rule resource page.
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