401(k) Specialist Issue 2 - 2021 - 30

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Just before Christmas, the Department of Labor
adopted a rule that reinstates the five-part test to
determine what is or isn't investment advice, and
implements a new prohibited transaction exemption
that expands fiduciary advice to include rollover
recommendations. The rule went into effect
in mid-February, but advisors have until Dec. 20
to comply.
Mike Pedlow, Executive Vice President and Chief
Compliance Officer at Kestra Financial is " encouraged "
by the rule.
" It's a nice balance of the DOL trying
to come out and finally have a rule people
can live with on all sides of the business, "
he said. " We especially like that it took
into consideration, in its structure, Reg BI,
and all the work that we put into Reg BI
because we spent a year and a lot of money
putting that together. "
The rule requires advisors to make
recommendations using impartial conduct
standards: that the advice is in clients' best
interest, that the advisor's compensation is
reasonable, and that they make no materially
misleading statements. The rule also
gives retirement advisors an opportunity
to expand their relationships with participants,
according to Tolen Teigen, Chief
Investment Officer of FinDec, which
provides boutique TPA, recordkeeping, and
consulting services to financial advisors.
" From the retirement plan advisors' perspective,
this is a much-needed exemption
to allow them to continue working with
their clients through retirement and not
just to retirement, " Teigen said. " Without
this exemption, retirement plan advisors
would not be able to transfer 401(k) assets
to an IRA and continue working with
their clients through their clients' retirement
years. This rule now puts the focus
on the client-advisor overall relationship,
and aligns the advice to the best interest
ISSUE 2 2021 | 401kSpecialist.com
''It's a nice balance
of the DOL trying
to come out and
finally have a rule
people can live with
on all sides of
the business.''
- Mike Pedlow,
Kestra Financial
of the client without regard to where the
money is housed. "
That opportunity doesn't come without
challenges, though. Allison Brecher, General
Counsel at Vestwell, was less sanguine
about the impact on advisors' operations.
" The new rule takes an aggressive position
about when the DOL will consider
advice about rollovers from a 401(k) plan
to an IRA to constitute fiduciary investment
advice, " she said by email. " The new
rule forbids an advisor who recommends
investing in a proprietary mutual fund
from charging a sales commission, and
[requires] independent fiduciary approval
for proprietary products. "
Sheryl O'Connor, CEO and Co-Founder
of IncomeConductor, a retirement
income fintech platform, agreed that the
fiduciary exemption " appears to bring the
retirement plan side of the business more
closely in line with the 'Best Interest' rules
in place on the wealth side, " but warned
that " the devils are in the details. "
" There are so many conditions around
what would actually be acceptable, " she
told 401(k) Specialist. " As with other
regulations, the rule is going to be further
clarified, and possibly revised by the Biden
administration. The U.S. Department of
Labor will shape the actual application of
the rule in the future. "
Future Guidance
The timing of the rule-passed in the
dwindling days of the Trump administration-and
political climate of late led many
in the industry to believe that the fiduciary
rule would be rescinded after President Joe
Biden took office.
" We fully expected, as did, I think, most
people, that the rule would be delayed
based on the Biden administration's memo.
So we were somewhat taken aback when
that didn't happen, " Pedlow said. On Jan.
20, Biden issued a " regulatory freeze " for
new rules to give incoming appointees
time to review them.
Douglas Kamin, managing director at
Foreside, a financial services compliance
and consulting firm, doesn't believe the new
administration's decision to allow the rule to
stand is a good signal of any future action.
" I don't know that we can read too much
into it. Clearly, if you look at the pace of
items that the Biden administration is reviewing,
they've been on a tear, " he said.
He added that he wouldn't be surprised
to see additional guidance " given the fact
that the Biden administration appears to be
reviewing all interpretations of rules that
were promulgated or provided during the
last administration. "
It's also possible that future guidance
will come from judges rather than the
executive branch.
" It's almost three years to the day since
the U.S. Court of Appeals struck down the
last fiduciary rule that DOL updated, " Kamin
said in March. " Last time, they came
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401(k) Specialist Issue 2 - 2021

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