Who will enforce new DOL Rule?
One of the questions lost in the turmoil about the financial service’s industry’s ability to adjust their practices to the DOL’s new fiduciary is who is going to enforce it when it comes to IRAs over which the DOL has no enforcement jurisdiction? Some experts believe that the DOL has intentionally made it easier for plaintiff’s lawyers to sue when workers roll out of the defined contribution (DC) plan into an IRA when it might not be in the investor’s best interest.
The DOL rule will accelerate the already growing trend of more advisors acting as DC plan co-fiduciaries which the industry has been accepted and has prepared for. And even though the DOL has no enforcement ability over IRAs, which is the domain of the IRS, it did not stop them from requiring advisors to act in the best interest when recommending and working on IRAs. DC plans have an independent fiduciary reviewing costs and investments operating under ERISA – IRA holders who tend to be less sophisticated do not enjoy the same protection. The DOL rule will force advisors on IRAs to either act as a fiduciary or work under the best interest contract exemption or BICE which states that the advisor is working in the best interest of their clients.
Which many experts believe is a huge opportunity for plaintiff’s attorneys representing individual investors. It’s common for investors to sue their advisors for wrong doing – the DOL rule makes it easier to sue and win if the advisor cannot prove that they acted in their client’s best interest. Other experts believe that the rule opens the way for class action lawsuits and the DOL might rescind the BICE for broker dealers that do not have adequate policies and procedures to police them.
So how does this affect plan sponsors? Their relationship with plan advisors has been changing dramatically over the past decade. Almost 85% of companies with 50-10,000 employees use an advisor with an increasing number of plan sponsors hiring more qualified advisors willing to act as fiduciaries. The DOL rule will accelerate this trend but it might also make plan sponsors think twice about advisors working with their employees on IRA rollovers whether the plan advisor or other professionals. Because if the plan sponsor selected the advisor or even allowed them access, attorneys may look to companies who made that selection for relief if the advisor did not act in their client’s best interest.
