PLANADVISER - November/December 2017 - 32

Crossing the Line
The new regulations
affect participant-level fiduciary
advice in several ways. Today, any adviser who gives investment
advice to participants crosses the fiduciary line. The
fiduciary rule " no longer requires that advice be provided on
an ongoing basis to give rise to fiduciary status, " DeMatties
says. " The fact that more instances are captured by the rule
because of the elimination of the 'ongoing basis' requirement
gives rise to differences in what [was] considered [a]
fiduciary [act] before [the rule and what is] after the rule. "
Also, the regulations say that to cross the fiduciary line,
a recommendation may be far less than the primary basis
for a participant's investment decision. " There's always
been some confusion related to, how far can one go within a
communication to participants before crossing the fiduciary
line? " DeMatties says. " People are going to be sensitive to, 'Is
that a personalized recommendation?'-even with respect
to simple, everyday communications about a plan. It does
significantly increase the risk of crossing the fiduciary line. "
The increased emphasis on personalization has shifted
the line between education and advice for advisers and
recordkeepers, says Brian Tiemann, a partner at law firm
McDermott Will & Emery, in Chicago. " A lot of information
that was provided as education to participants before
included what constitutes investment advice under the
new rule, meaning it is tailored to a participant's specific
circumstances, " he says. " Advisers and recordkeepers can
still provide education that is general information on a
plan and its investment options-factual information to let
participants know what their options are. Advice is when
they cross the line into a recommendation,
where it involves talk of a participant's
own circumstances. "
And
the new fiduciary
regulations
clarify that giving advice related to rollovers
and some other distribution decisions
makes an adviser a fiduciary. " Clearly,
the new rule broadens the type of information
given to participants that is considered
fiduciary advice, " DeMatties says.
Nonetheless,
crossing into fiduciary
territory to be able to give distribution
advice appeals to some recordkeepers,
says David Blanchett, head of retirement
research at Morningstar Investment
Management in Chicago. " Recordkeepers
generally don't profit much from running
defined contribution [DC] plans, " he says.
" They make money off of rollovers and
other retail investor business. "
To now deem advising on distributions
as a fiduciary act poses a new challenge
for the industry, Tiemann says. " These are
topics that were covered by advisers and
recordkeepers before, but there was not
the same level of fiduciary duty imposed
on them, " he says. " Now, there's this clear
delineation. But it's a tough line, because
a participant getting education is going to
ask about what his options are and ask for advice on the
choices. When it gets into tailored [recommendations] for
participants, it's fiduciary advice. "
But when he contemplates the new rule's impact so far,
DeMatties says, it is less the major regulatory changes than
the heightened awareness among service providers and
advisers of the potential for crossing that line-i.e., from
simply providing certain plan information and education
to giving advice-and that this awareness could discourage
many advisers from providing even basic education. " The
main difference is there is a lot more sensitivity, and in
some cases outright refusal to participate in offering fiduciary
investment advice, " he says. " Whether communication
crosses the line or not, people are more afraid now that it
does. That fear is the biggest difference now. Some advisers
and providers are worried about risk, so they're willing to
say and do less. They are being advised to have far more
muted conversations with participants. "
So, what communications fall safely on the side of
education now? " Make sure participants have all the information
they need to make good, informed decisions-that
they have the information to understand the funds, the
fees and their own flexibility to make investment decisions, "
Tiemann says. " You can give participants all the information
they need to [do that]. "
DeMatties agrees with Tiemann that the regulations still
allow several types of education: information and materials
that describe investments and plan alternatives, as long as
these contain nothing that recommends a particular investment
or strategy; general financial, investment and retireThe
Fate of the Fiduciary Rule
In spite of the many recommendations made by industry experts, it is still
unclear whether the new fiduciary regulations will endure. The Department
of Labor (DOL) itself has introduced uncertainty by publishing a request for
information (RFI)
regarding certain aspects of
the fiduciary rule,
leaving
open the possibility for major changes, says Dominic DeMatties of Alston
& Bird LLP. Additionally, the DOL said in June that it will not pursue actions
against fiduciaries " who are making a good-faith effort to comply " with the
new regulations during a transition period that currently ends January 1,
2018, he says. That transition period is likely to be extended further, he notes.
" At this point, it's anybody's guess what will happen to the new regs, " DeMatties
says. " We don't know how or where the final rule is going to land,
including the main body of the fiduciary rule. " But if there are changes to
the rule, he adds, it seems unlikely that the DOL would revert back to the old
five-part fiduciary test.
Even if the DOL does make significant changes, some advisers and recordkeepers
have gone too far down the compliance road to reverse course
totally, says Jason Rothman of Findley Davies. " If the administration ends up
shelving these specific new regs, I think that some form of this will live on, "
he says. " The regs may be scaled down, and the DOL may change some
of the rule that remains, but it would be tough to just get rid of everything at
this point. In the meantime, advisers continue to plan for compliance with
the fiduciary rule, taking into account potential amendments of [it]. " -JW
32 | planadviser.com november-december 2017
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PLANADVISER - November/December 2017

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