The Clock Is Ticking...

March 10, 2015
By: Chin Kim

Since 2012, we have heard a number of times that the Department of Labor (DOL) was going to re-propose the fiduciary definition. Well, the time has arrived.

Since 2012, we have heard a number of times that the Department of Labor (DOL) was going to re-propose the fiduciary definition. Well, the time has arrived; the proposed rule was finally submitted for review with the Office of Management and Budget (OMB) on Monday, February 23, 2015.

 

What happened?

After the prior attempt to re-propose the fiduciary definition in 2010 and later withdrawing it in 2011, the DOL has submitted to the OMB for review the latest proposed rule. The new title is "Conflict of Interest Rule – Investment Advice." Typically, the review process can take up to 90 days, placing the estimated completion date during late May 2015. Some are predicting that the process could be completed sooner. Yet, there are others predicting the review may take longer than 90 days.

 

What are the next steps?

After the OMB returns the proposed rule to the DOL, the text of the rule will be released to the public for review. Stakeholders are allowed to submit comments and also attend public hearings. The White House fact sheet states, "Only after reviewing all the comments will the administration decide what to include in a final rule – and even once the Department of Labor ultimately issues a final rule, it will not go into effect immediately."

 

Why is this being done and why is important?

Reasons shared by the current administration are as follows:

  • ERISA's definition of investment advice has not been updated since 1975. The main growth in retirement assets has come from more employers offering defined contribution-type plans and IRAs fueled by IRA rollovers. The new re-proposal will attempt to update the definition to better match how individuals are receiving investment advice when they have assets within the different plan types.
  • The final rule will ensure financial advisors place their customers' best interests first. The White House report ("The Effects of Conflicted Investment Advice on Retirement Savings") that is receiving much attention in the press estimates that conflicted advice is causing lower returns (roughly 1% each year), which equates to $17 billion in losses each year.1

Although the proposal to the OMB is not available for public access, most industry experts anticipate that the key changes from the prior proposals will be retained and could include:

  • Possibly expanding the group of financial advisors subject to ERISA's strict standards of fiduciary responsibility.
  • Certain compensation models possibly being prohibited if the financial advisor's status changes from non-fiduciary to fiduciary.
  • The advice that is at play is not limited to employer-sponsored plans, but also includes IRA rollovers from current and former participants.  

If you have any additional questions, please feel free to contact Retirement Strategies Group at (800)722-2333, ext. 3939, or e-mail us at RSG@PacificLife.com.

 

 

1The Effects of Conflicted Investment Advice on Retirement Savings. United States Department of Labor. Feb. 2015.

 

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Pacific Life, its distributors, and respective representatives do not provide any employer-sponsored qualified plan administrative services or impartial investment advice and do not act in a fiduciary capacity for any plan.

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Chin Kim leads the Retirement Strategies Group, as Assistant Vice President in the Retirement Solutions Division at Pacific Life. His core responsibilities includes sharing and supporting retirement strategies concepts through development of marketing materials and tools and leading the team members in the field and in the home office.

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