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Regulation and Compliance > Federal Regulation > DOL

Ed Slott: Final DOL Fiduciary Rule Goes 'All-in' on Rollovers

By Melanie Waddell

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The Labor Department is “going all-in on the IRA rollovers” with its final fiduciary rule, according to Ed Slott of Ed Slott and Co.

“One of the big changes [under the rule] is that advisors used to be able to get around [fiduciary responsibility] because a rollover is a one-time transaction. Not anymore,” Slott told ThinkAdvisor Wednesday in an interview.

In its final rule, released Tuesday, “it’s pretty clear that one of the big changes is that ERISA rules — the fiduciary aspect of it — does apply to IRAs,” Slott said.

Even one-time rollovers are covered.

“The DOL again wants to ensure that when making an IRA rollover recommendation, advisors are considering numerous factors, the pros and cons of each option, and can document a process to do that,” Slott said.

“Advisors will have to get up to speed on all available options when retirement funds are leaving company plans,” Slott continued. “They must be able to show that they have a process to explain all the options, the benefits and drawbacks when making any recommendation and to document that.”

Rollover Process

As the 476-page rule states: “Financial Institutions must document the reasons for a rollover recommendation and provide that documentation to the Retirement Investor.” There must be a “written explanation of the basis to recommend a rollover.”

With over $1 trillion per year going from 401(k)s to IRAs, Slott continued, DOL wants “to make sure advisors are doing the right thing.”

The rule — which Slott says “came out just as was expected” regarding IRAs — states that advisors “cannot just say ‘do the IRA rollover’ without going through a process to help clients make the right decision.”

“This ‘process’ is something we have been training advisors on for over 20 years at our 2-Day IRA Workshops,” Slott added. “IRA rollovers often involve a client’s life savings, and advisors need to get educated on the options and the process.”

Labor’s rule highlights the importance of a rollover transaction, Slott relayed, saying that “decisions to take a benefit distribution or engage in a rollover transaction are among the most, if not the most, important financial decisions that plan participants and beneficiaries, and IRA owners and beneficiaries are called upon to make.”

Compliance Overload

Rollovers “were referred to exactly 300 times in the 476 pages,” Slott said. “The big takeaways were essentially the same as the earlier versions” of the fiduciary rule.

The bottom line: “The weight of these rules just seems to me like an overload of paperwork and compliance for most advisors who just want to properly advise and serve their clients,” Slott said. “In the end, it seems to me that the clients will eventually pay the cost for all of this.”

Unfortunately, Slott added, the final rule “is written for what may be some bad apples, which may still be the case after all of this.”

Melanie Waddell

@Think_MelanieW

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