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DOL’s Proposed Fiduciary Rule: Back to the Future

Principal Founder and CEO, fi360

Don Trone, Principal Founder and CEO, fi360

According to Don Trone, the father of modern day fiduciary and founder of fi360, lecturing at a recent TRAU program at UCLA Anderson, the DOL’s proposed fiduciary rule which may have good intentions, sets the industry back in a number of ways.

Here’s Don’s analysis

  1. The DOL proposal is focused almost exclusively on fees and expenses, and does not take into account the 16 other fiduciary practices that are currently substantiated by ERISA and DOL requirements, regulatory opinion letters, and case law. For example, there is no mention of preparing the Investment Policy Statement, conducting due diligence for investment options, and delivering a periodic performance report.
  2. The DOL proposal is reverting back to the pre-ERISA time period when the courts and regulators attempted to define the products, asset classes, and investment strategies that would meet the test of prudence. Such interference was found to be destructive to sound portfolio management. Under the current scenario, the DOL has said that it will consider the implementation of investment strategies with no-load index funds to be presumptively prudent.
  3. The DOL has not properly considered how a fiduciary standard that has been designed for investment committees, can be applied to individual retirement saver. (IRAs and IRA rollovers).

Though some members of Congress are attempting to block the rule, the consensus is that it will go through.

Though the DOL conflict of interest rule will affect advisors more than plan sponsors, it’s a seminal rule acknowledging that all professionals that have significant impact on Defined Contribution (DC) plans like 401(k)s and 403(b)s should act with a very high standard of care and, if not, should properly disclose any conflicts. The rule would essentially require all advisors that touch a DC plan to be a fiduciary or work with a 3rd party that will act as one. Stay tuned as we await the final rule and whether congress will actually block it.

Fred Barstein

Fred Barstein

Founder & Editor-in-Chief at 401kTV | TRAU | TPSU
Fred Barstein is the Founder & Editor-in-Chief of 401kTV. Fred is also the Founder and CEO of The Retirement Advisor University (TRAU), a collaboration with UCLA Anderson School of Management Executive Education and The Plan Sponsor University (TPSU).Mr. Barstein was also Founder and Editor-in-Chief of NAPA Net.
Fred Barstein
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