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Fiduciary Rule Can Create Opportunity for Retirement Advisors

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It’s an “exciting time to be an ERISA attorney,” Pam O’Rourke, senior vice president and senior counsel for Integrated Retirement Initiatives, told attendees at the TD Ameritrade National LINC conference during her session on Thursday. She discussed some of the major legislative and regulatory changes that have been introduced and how they will affect retirement plans.

The Bipartisan Budget Act of 2015, which was passed in late October, increased federal spending and raised the debt ceiling. Some of the changes made to pay for that, O’Rourke said, affect retirement planning, including Social Security.

The bill closed loopholes that a lot of people had “baked into their retirement income projections,” including the popular file and suspend strategy.

The Consolidated Appropriations Act of 2016 made permanent the ability for investors 701/2 or older to make charitable contributions directly from their IRAs, and made it possible for investors to make rollovers to SIMPLE IRAs from different types of accounts if they’ve been eligible for at least two years.

“The average tenure of a worker today is about 4.6 years, so they’re building assets in all types of employer plans,” she said. “The rules continually allow more free movement to consolidate” those assets.

In late January, the White House released a fact sheet describing some of its initiatives to improve retirement savings, O’Rourke said, including efforts to increase access to savings for the approximately 68 million people who don’t have access through an employer; automatic mandatory IRAs for small businesses that don’t offer other plans, which O’Rourke said has been included in “budget initiatives for the last several years”; and increased access to multiple employer plans.

Association MEPs are currently allowed for groups of employers that are related. O’Rourke said the industry tried to create multiple employer plans several years ago, but the Department of Labor issued guidance a few years ago that made open MEPs unattractive. “It looks like now they might be dialing that back,” she said.

“It’s an election year so we know we’re probably not going to see any major legislation,” she added, “but I think what we’re going to see is the Department of Labor and IRS trying to do what they can from a regulatory standpoint, similar to what they’re trying to do with the conflict of interest regulations in order to move these initiatives forward as much as they can without formal legislation.”

Speaking of the conflict of interest rule, which finally made it to the Office of Management and Budget on Jan. 29, O’Rourke said, “nothing that I have seen in my years as an ERISA attorney has generated the level of debate and discussion that I’ve seen with these regulations.”

Advisors who are 3(38) fiduciaries won’t actually be affected by the rule, O’Rourke said. The rule changes the definition of fiduciary in section 3(21), which says an advisor can become a fiduciary either by saying they are one or by acting like one. “What they’re really worried about is potentially conflicted advice; that means the ability for recommendations to change what you’re going to get in compensation.”

So if a wealth manager who works with rollover candidates advises them to roll assets into a plan he or she is not an advisor to, under the current rule, the recommendation doesn’t trigger 3(21) fiduciary status. Under the new rule, making the recommendation makes the manager a fiduciary, O’Rourke said.

The response from advisors to the rule has been “amazing,” O’Rourke said. “Thousands of comment letters issued, three and a half days of public hearings and additional comment letters published after that. As an industry, we’ve really had an opportunity to [have] a voice.”

The Obama administration is eager to get the rule finalized and in effect before leaving office, O’Rourke said, because the next administration could continue to put it off. She doesn’t believe Congress will block it, or that the OMB will take the full 90 days to review it. “I think it’s going to be more like four to six weeks,” she said.

Once the final rule is issued the industry will have eight months to fully adapt to the new regulations.

As a result, there may be some advisors who leave the retirement plan space, which presents opportunities for advisors to pick up that business, O’Rourke said.

“Any rule can be looked at in a negative way, and there will be some of that, but it can also create some opportunities.”

— Read DOL Fiduciary Rule Lands at OMB for Review on ThinkAdvisor.


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