December 08, 2011
--- As financial professionals anxiously await the Department of Labor's next version of the fiduciary definition, Bradford Campbell, ERISA attorney and former head of EBSA, offered his insights today during a webcast. ---
The DoL sent shock waves through the retirement industry when it released its original proposal for a new definition of what makes a financial professional a fiduciary last October (see “DoL Broadens Fiduciary Net”). After much push-back from the industry, the DoL withdrew its proposal in September (see “EBSA to Re-Propose Definition of Fiduciary Rule”). Some in the industry breathed a sigh of relief, thinking that the DoL’s Employee Benefits Security Administration (EBSA) was going to drop the issue, but Campbell, speaking on a webcast hosted by PLANADVISER and sponsored by ADP and Federated Investors, says the DoL is still very determined to weigh in on the matter of who is a fiduciary.
Campbell explained what the implications are for financial professionals who carry fiduciary status: it determines their business model (both legal standard of conduct as well as what services can be provided); how they can get paid; what kind of professional insurance they need; whether they are liable for the plan fiduciary’s misconduct as a “co-fiduciary”; whether 408(b)(2) disclosures always or sometimes apply and whether business partners/affiliates raise prohibited transaction issues.
Being a fiduciary means always acting in the best interest of your client, Campbell noted. “Regardless of your personal views on this,” he said, “having the standard of care for being a fiduciary comes with baggage of prohibited transactions.” Additionally, he noted, the way EBSA writes the proposal has a significant impact–many industry professionals said the original proposal left too much uncertainty.
Other concerns regarding the original proposal included:
- A significantly expanded scope of ERISA fiduciary status to include common non-fiduciary advice regarding investment option selection provided by broker/dealers and others.
- Exceptions to broad rule for product sellers and “platform” operators provided limited relief as written due to conditions/ambiguity.
- Fiduciary status for many of these advisers would effectively prohibit receipt of variable compensation and execution of principal trades, as well as impose more burdensome liability.
- The proposal would affect not only ERISA plans (DC and DB) but also IRAs.
- Proposal’s request for comment suggests DoL is also considering restrictive standards for cross-selling and IRA roll-over solicitations to plan participants.
- Proposal would make ESOP and other valuations fiduciary advice.