PLANADVISER - July/August 2018 - 27

as its default to clients' terminating employees,
'Roll over your money to me,' there's a business
reason to consider whether that makes sense.
You may not necessarily have regulatory problems,
but if sponsors get mad at you for doing
things they think are inappropriate, maybe
you've won the battle but lost the war. "
The Education-vs.-Advice Line
Three sets of regulations cover advisers' work
on distribution options, only one of which was
established by the DOL, says attorney Carol
Buckmann, co-founding partner of law firm
Cohen & Buckmann PC in New York City.
With the fiduciary rule's demise, Advisory
Opinion 2005-23A, issued in 2005, resumes
as the DOL's main guidance. " In that opinion,
the DOL said that unless an adviser is already
a fiduciary to a plan, a recommendation to a
participant to do a rollover is not a fiduciary
function, " she says.
" Basically, what the DOL said in 2005-23A is
that, No. 1, advising a participant on whether
to take a distribution is not inherently fiduciary
investment advice, " Ashton agrees. " But
what it also said is that if you, as an adviser,
are already a fiduciary to a plan, then your
distribution advice is fiduciary advice and is
subject to the ERISA [Employee Retirement
Income Security Act] fiduciary rules. If you are
not already a fiduciary to that plan, then it's
not fiduciary advice. "
The Securities and Exchange Commission
(SEC) also has a voice on rollover advice. In
April, it voted to propose a package of " Regulation
Best Interest " rules and interpretations
aimed at enhancing the quality and transparency
of the relationships investors have with
advisers and broker/dealers (B/Ds). " The new
SEC 'best interest' proposal, which may or may
not be enacted, is apparently intended to cover
rollover advice, " Buckmann says.
" The [SEC's] position seems to be that if
you make a recommendation to do a rollover, that's really a
recommendation to liquidate the securities an investor holds
in a plan account, and that's an investment recommendation
covered by SEC rules, " she says. " Even if you're a broker and
not an RIA [registered investment adviser], the advice you
give on doing a rollover would have to be in the best interest
of the participant. " However, the agency has not yet clearly
defined what that means, she adds.
Regulatory Notice 13-45, issued in 2013 by the Financial
Industry Regulatory Authority (FINRA), gives advisers guidance
regarding the line between education and advice on
distribution options. " FINRA 13-45 basically says that when
you give a recommendation regarding a distribution, that's
inherently an investment recommendation, " Ashton says.
Notice 13-45 also lays out what advisers need to do to
stay on the education side of a distribution discussion. " You
can talk about what the participant's alternatives are and
what the pros and cons are of each of those alternatives, "
Ashton says. That means objectively discussing the four
options a terminating participant has: leave his money in
the former employer's plan; roll over the assets to a new
employer's plan, if that is permitted; roll over the money to
an individual retirement account (IRA); or take a lump sum
for the account's value.
" If you remain neutral about the alternatives and don't
make any recommendation on what the participant should
do, you are going to satisfy the education requirements, " he
says. " You can't provide any discussion of the pros and cons
with a, 'Wink, wink, rolling over to an IRA is better.' "
But what if a participant then asks something along the
lines of, " Can you please just tell me what I should do? " For
advisers who want to remain on the education side, Ashton
Keep Your Eyes Open
THE Department of Labor (DOL)'s revised fiduciary rule may have been
vacated, but sources say advisers should keep their eye on the following
developments, which could affect their distribution-phase work:
* The DOL clarifying its stand.
There is some industry concern that the DOL staff, having put together
the revised fiduciary rule, no longer stands behind the previously issued
Advisory Opinion 2005-23A, says Groom Law Group's David Kaleda.
" Some folks are hoping the DOL clarifies where it stands on that. "
The agency's revised rule did provide significant clarity about distinguishing
education from advice, says Jennifer Tanck of Pensionmark.
However, with those rules vacated, " we are hoping the DOL will again
give us a solid framework about education vs. advice, through new
guidance. "
* The SEC adopting its " best interest " proposal.
The currently pending proposal by the Securities and Exchange
Commission (SEC) suggests that an adviser's recommendation to do
a distribution and rollover would be subject to best interest SEC regulations,
even if the adviser does not serve as a fiduciary under the
Employee Retirement Income Security Act (ERISA), says Bruce Ashton
of Drinker Biddle & Reath. " They are not the rules now, but I expect that
something eventually will be finalized, " he says.
The SEC's best interest proposal has many similarities to the DOL's
vacated fiduciary rule, but there are still many questions, Tanck
says. " We understood what acting in someone's best interest meant
under the DOL rule, but we don't yet know what 'best interest' means
according to the SEC. "
* States moving forward on their own rules.
" For example, Nevada passed legislation that took effect last year, and
it says that if you give an investment recommendation to a client, or if
you give financial planning advice, then you are a fiduciary, " Ashton
says. " It strikes me that what Nevada is doing is just
iceberg and that other states will do similar things. " -JW
the tip of the
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