What Advisors Need to Know About the Fiduciary Rule

At this stage, essentially all firms are able to function effectively under this ruleset, the panel agreed. They are also mostly prepared for a number of potential outcomes in the Texas court case, whether the rule is vacated or upheld.

IRA-to-IRA Rollovers

One area where firms are taking different approaches and asking tough procedural questions is in the realm of IRA-to-IRA rollovers, said Olson DeLucia.

At this stage, there is more clarity with respect to the requirements and responsibilities associated with an advisor recommending a rollover from a workplace retirement plan to an IRA. Where there is less certainty is to what degree the recommendation to roll from one retail IRA to another IRA brings the same degree of scrutiny.

“Firms are grappling with the question of how they can and should document their decisions in this domain,” Olson DeLucia said. “Do they follow the exact same documentation process as with plan rollovers?”

With IRA-to-IRA rollovers, different factors are at play for key best-interest considerations around fees, access to investment options and fiduciary oversight. And those factors may matter differently when comparing two IRAs versus an IRA and a 401(k) account.

“That can make it more difficult to demonstrate compliance with the advisors’ care and loyalty obligations,” Olson DeLucia pointed out.

A More Unified Industry

Taking a step back from the current moment, Sarabi observed that the financial services industry has undergone tremendous change in the past 20 years, driven by organic market developments as well as pressure from regulatory change.

“Twenty years ago, the different parts of the industry were very different animals across insurance, advisory, retirement plans, etc.,” Sarabi said. “As time has passed, there has been a convergence of these different areas of the financial industry and an embrace of similar best practices around client service. This latest fiduciary rule saga is another part of that trajectory.”

Today, Sarabi suggested, the concept of “doing things in the best-interest fashion” makes sense more broadly across the industry. This has been driven both by regulation — think the NAIC rules, the SEC’s Reg BI and the Retirement Security Rule — but also by changing client expectations.

“I think that, as we move forward as a more cohesive industry, we can expect to see more similarities and sharing of disclosure language and best practices across the whole industry,” Sarabi said. “The rule that was stayed would have really accelerated this trend, but I believe it is still ongoing.”

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