The Department of Labor’s fiduciary rule has been a hot topic in the financial industry, causing what some have dubbed “Fiduciary Rule Mania.” With recent court cases stemming potential regulatory changes, uncertainty looms large for those navigating the complexities of compliance. In a recent discussion, industry leaders shared their insights on how to best navigate these turbulent waters, focusing on the challenges, opportunities, and best practices for remaining compliant while growing their businesses. 

 

Overview of the DOL Fiduciary Rule and Its Implications 

The DOL’s fiduciary rule has been a subject of ongoing debate and legal scrutiny, particularly with its latest iteration in 2024. The rule’s goal is to ensure that financial advisors act in their client’s best interests, particularly in advising on IRA rollovers. The key issue discussed was whether one-time advice can be classified as fiduciary advice, which remains contentious due to recent court stays. These legal challenges have created uncertainty, leaving firms to navigate a regulatory landscape that could shift at any moment. 

Despite the current stay on the rules, firms must remain compliant on existing PTE 2020-02 and Reg BI requirements. The possibility of future regulatory changes means that firms cannot afford to be complacent. Instead, they must be prepared to adapt quickly to any new requirements. 

 

Documentation: A Critical Component of Compliance 

Even though the DOL’s Retirement Security Rule may have eased certain documentation requirements, the fundamental obligation to act in the client’s best interest remains. Given the recent court stays, the documentation obligation necessitates thorough all wealth advisory actions, particularly in the context of IRA-to-IRA rollovers. 

A takeaway from the discussion was the “belt and suspenders” analogy. This approach underscores the importance of having multiple layers of documentation and compliance processes in place. For instance, financial advisors should not only rely on their personal recollection of client meetings but also use standardized forms and disclosures to ensure they are fully compliant. 

To further reinforce the ‘belt and suspenders’ framework, it is worth noting that Regulatory examiners  often operate under the assumption that if an action isn’t documented, it didn’t happen. This makes rigorous record-keeping essential. Firms are advised to continue conducting detailed analyses and documenting their decision-making processes to demonstrate compliance and protect against potential regulatory scrutiny. 

 

Leveraging Technology for Enhanced Compliance 

Regardless of where this rule ends up, by transitioning from manual to digital platforms, firms can not only improve the efficiency of their operations but also enhance their ability to supervise and audit compliance activities effectively. 

Digitization offers multiple benefits, including improved data quality, easier supervision, and the ability to conduct real-time audits. Additionally, technology solutions provide a centralized platform for documentation, making it easier for firms to manage large volumes of data and ensure compliance across multiple advisory activities. 

 

“We have about 120 advisors that we work with, and they all have to go through the same system, the same funnel. Every time a form is submitted or disclosures are made to a client, that document is saved on a database. We use RolloverAnalyzer, so it’s saved on Rollover Analyzer’s database, and then I can go in there at any time, or anyone on our team can go in there—including our operations team, not just the compliance department.”

Armin Sarabi CCO, GC Alphastar  

 

For firms operating with independent advisors or managing complex compliance requirements, technology can provide a standardized approach that simplifies oversight and ensures consistency in documenting advisory actions.

“I think beyond that, you want to look at whether they’re providing the same explanation as to why the rollover is in the client’s best interest or if the same investment product is being recommended. Look at the financial advisor individually, by branch office, or across the firm as a whole. The technology can really help you with that.”

Victoria DeLucia, Director – Institutional Engagement, Confluence

 

Staying prepared in an uncertain environment 

The fiduciary rule may be in flux, but the commitment to acting in the best interest of clients is unwavering. Firms must continue adhering to best practices, maintain robust documentation, and leverage technology to stay ahead.  As the industry continues to evolve, firms that are proactive in their approach to compliance will be best positioned to succeed. 

 

 “If I can make a quick point on that—just remembering working with firms when we were talking about implementing systems for Reg BI compliance in 2020, ahead of the compliance date, there was a lot of thinking by firms at the time that, “Look, day one, I just want to get out the door and have facial compliance, and I’ll worry about technological enhancements later. Right now, I’m just going to Jerry-rig what I can out of my existing systems, like PDF modifications to account forms and the like.” I think what we’re seeing, particularly with clients—dual IA-BDs in particular—is that over time, not only has the cost of some of the technology come down, but the expectation of regulators looking at your systems is rising.”

David Porteous, Partner, Faegre Drinker 

 

Tags: DOL, DOL PTE 2020-02, Fiduciary Rule, Rollover Analyzer