Three ERISA experts speaking during a webcast hosted by PLANADVISER and Voya Financial on the Department of Labor’s (DOL’s) final fiduciary rule all warned that retirement plan advisers will have to coordinate responses to the rulemaking closely and carefully—both within their own firms and with service provider partners—especially brokerage and investment platform providers.

After stepping through the basics of the pending fiduciary reform, Bradford P. Campbell, counsel at Drinker Biddle & Reath LLP and former head of the Employee Benefits Security Administration (EBSA), suggested that advisers’ own plans for responding to the new regulations may be superseded by those of investment providers or other service provider partners. At the very least, advisers will have to make sure the response they would like to implement will still be possible after any pending changes their brokers or other service provider partners may themselves choose to make.

“For advisers who find themselves becoming fiduciaries for the first time, a lot of the response will be determined by how your broker is going to want to handle the Best Interest Contract (BIC) exemption,” Campbell explains, noting that both before and after the final rule language emerged, the BIC has been a major point of contention. “At a very high level we believe there will basically be three responses that brokerage platforms are going to take, and which advisers will have to take into account in adjusting their own business models.”

First is the model that the DOL, it’s fair to say, is trying to encourage through the strict new rulemaking and the wide expansion of the number of fiduciary advisers. “This would be the full level-fee approach, taking away all sources of variable compensation to get around the prohibited transaction concerns entirely,” Campbell explains. “This will be attractive because it will be by far the most simple and direct way to comply with the final rule, making sure all compensation for all advisers selling on the platform is reflected in the one level fee that gets presented to the client. It’s attractive, but it be difficult to pull off for many firms that have not previously structured their business this way, especially in the short 12-month timeline the DOL has given us.”

Second will be essentially the opposite approach. “This will mean brokers deciding they are OK with relying fully on the BIC for pretty much all of their client relationships, which will also be tough because of the extensive disclosure requirements that go along with papering the BIC, even under the final rule, which has been softened from the original pretty substantially,” Campbell explains. “This will be the approach for brokers who are unwilling or unable to forgo variable compensation and commission-based models for advisers, especially in the short term.”

NEXT: More on brokers’ potential response

The last approach, Campbell explains, will be something of a hybrid.

“The third approach will essentially entail using the BIC in some circumstances, but also making sure the adviser who is actually on the ground making recommendations is getting level compensation no matter what they advise the client to do,” he says. “This will allow the financial institution to get variable compensation, and so it may require the BIC to be used in certain circumstances. The main idea is to protect the wider firm from liability and litigation by making sure the boots-on-the-ground adviser, specifically, is not conflicted.”

David Bellaire, executive vice president and general counsel at the Financial Services Institute, agreed with Campbell that advisers will not be able to respond unilaterally to the new fiduciary paradigm. He also warns that, whatever approach is taken, “advisers can’t ignore the principles at the heart of the final rule.”

“Even under BIC you can’t misalign the best interest of the adviser and the participant,” he explains. “You will have to quantify and justify any increased compensation, should you choose to continue with commissions and other variable compensation models. Doing business that way will frankly mean more risk and a lot more compliance work, and that’s what DOL wants.”

Charlie Nelson, chief executive officer for retirement at Voya Financial, was also featured on the webcast. He warned that broker/dealers, banks, insurers, and all the other practitioners in the retirement planning industry “are only two weeks out from first having seen the final rule,” so there is a lot left to be determined.

“For example, among the many issues we are analyzing is whether and how this final rule is going to make the very-necessary discussion on retirement account distribution counseling a more labor-intensive or risky process for advisers,” Nelson says. “We believe the final rule makes this a real challenge. It will also be a real challenge for advisers to comment on roll-ins and roll-outs without requiring prohibited transaction exemptions. We're going to be studying all of this closely and responding as needed.”