SAN DIEGO -- Some advisors may have breathed a sigh of relief when the fiduciary rule was delayed, but ERISA attorney Fred Reish warns against letting this extra grace period go to waste.
"On June 9, the fiduciary rule — lock, stock and barrel — comes into play," Reish said at IMCA's 2017 Annual Conference Experience in San Diego.
Although to
"I think the rule will go through as it is now," he says. "There may be some changes, but it won't be significantly different."
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The new offerings could boost returns to investors by 50 basis points, according to a Morningstar study.
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The firm previously told some customers they would be transferred from their advisers to a self-managed system, but then backtracked and said it's holding off on the changes.
April 12 -
CEO Jon Stein bemoaned the rule's 60-day delay and mulled what would happen if it was repealed entirely.
April 10
With little time to become fully aware of its requirements, Reish says advisors must begin taking actionable steps toward compliance.
PREP TIME
At its core, the Department of Labor's purpose in
The scope of the challenges is enormous. With nearly 80 million baby boomers expected to file for retirement benefits over the next 20 years, IRA rollovers will approach $2.4 trillion cumulatively from 2016 to 2020, Reish says. As a result, advisors must decide whether they are going to recommend retirement plan participants take IRA rollovers after its full implementation, he says.
"If they are going to do that, they have to have a process in place where they can gather the right information, where they can evaluate it and they can provide a recommendation," Reish says. "Without that, [advisors] will inadvertently be making imprudent recommendations and committing prohibited transactions."
Avoiding any prohibited transactions — financial conflicts of interest that arise from recommendations — will soon be paramount, he says.
"If advisors are getting any payments from third parties, that would constitute a prohibited transaction," Reish notes as an example.
STRUCTURAL CHANGES AWAIT
The likely effects of the rule can be expected to change the structure of RIA firms, Reish says.
"I think there is going to be fee compression," he suggests. "With more requirements and lower fees, I think advisors are going to have to build a business model where some of the things that they do now, and that they don't have to do, are delegated to salaried employees."
Contemplating how long it may take before firms become completely compliant of the new rules, Reish says it could still be a few more years.
"How long will that take? I don't know, but I would say over the next four or five years we should begin to see that take effect," he says.
