Los Angeles partner Fred Reish was quoted in a ThinkAdvisor article titled “DOL Ready to Enforce Fiduciary Rule: Acosta.” Labor Secretary Alexander Acosta recently stated that the fiduciary rule’s best-interest standard is in effect and that the Department of Labor (DOL) is in “compliance assistance mode” for firms making an effort to follow the standard, but that for firms that commit willful violations, DOL will use its full enforcement authority.
Fred noted that the DOL has enforcement authority “over fiduciary compliance for recommendations to plans and participants, but not to IRAs.” Fred stated that the plan and participant recommendations fall into three categories when viewed from an enforcement perspective.
First, Fred said that if the financial institution is making diligent and good faith efforts to comply, the DOL will not institute proceedings for minor breaches while the nonenforcement policy is in effect. Financial institutions that do not make diligent and good faith efforts to comply fall into the second category, with the DOL enforcing violations.
The third area “is the most difficult. It is the grey area where a financial institution has taken some steps, but perhaps not enough,” Fred said. “In that case the DOL will review the efforts and determine whether they were diligent and in good faith.”
That evaluation “will probably look at the financial institution’s policies and procedures, supervision and training of employees and advisors,” Fred said. “If there is a material breach, though, that could, in and of itself, raise the issue of whether the efforts were adequate. There are a number of high-risk areas in this regard. For example, one such area is the recommendation to participants to take plan distributions and roll them over to IRAs.”