By Bernice NapachSenior WriterThinkAdvisor@Think_Napach

A warning to RIAs: Think the DOL fiduciary rule won't affect you, since you're already a fiduciary? Think again

Sometime next year, the Department of Labor will more than likely issue its final rule on the fiduciary requirements for financial advisors focused on eliminating conflicts of interest. While much of the response – and opposition – to the proposed rule has come from advisors who are not currently fiduciaries, the rule could also impact RIAs, who are fiduciaries as defined by the Securities and Exchange Commission.

“Just because you’re a fiduciary doesn’t mean there won’t be any costs or rules to follow,” said Michael Townsend, Schwab’s vice president of legislative and regulatory affairs at Schwab’s recent Impact conference in Boston.

“The DOL is a different regulator than the SEC, which RIAs are used to … particularly if the advisor is not involved on the 401(k) market side,” Townsend told ThinkAdvisor this week. Advisors are used to disclosing conflicts of interest through Form ADV filed with the SEC. That will not suffice for the DOL rule, which is focused not on disclosing conflicts but on prohibiting them.

“Layering on another set of regulators will require someone in the firm to understand them to potentially monitor and comply with,” said Townsend.

To start with, the new DOL fiduciary rule will apply only to retirement accounts, which means they will apply to clients’ IRAs, including rollovers from a 401(k) account. RIAs should consider, for example, “what kind of information … to provide to someone who is contemplating moving from a 401(k) to an IRA … someone who may not yet be a client of yours but may be considering become a client,” said Townsend.

There are important scenarios in which an IRA rollover is not the best move when changing employers.

Can the advisor recommend a 401(k) rollover into an IRA when the advisor’s management fee for the IRA exceeds the 401(k) plan’s fee or when the IRA doesn’t perform as well as the 401(k)?

Or, would that be permissible so long as the advisor operates under a best interest contract exemption (BICE), which would require that such a contract be signed by the advisor and the client?

And would a BICE be required before an advisor could talk to a potential client about an IRA rollover? That could be confusing and put off potential clients.

“We don’t know [the answers] yet,” said Townsend. He noted that there’s been a lot of discussion about where to draw the line between education and advice. “That’s what we’re all waiting to see.”

“A lot of thought has to be given as to how RIAs will have to proceed with their rollover business,” said Brian Leitner, senior vice president of practice management at Mariner Wealth Advisors in Kansas City, Kansas. ‘Maybe they need to augment the fee structure or have a BICE.” Leitner said RIAs could justify higher fees on an IRA compared to a 401(k) by explaining to a client that the advisor is providing more investment choices in the IRA as well as financial planning.

“There are some unknowns we have to deal with, but when I think about wealth planning, we deal with unknowns all the time,” said Leitner. He says his firm is having conversations both internally and externally, about the potential regulatory change and “preparing for it.”

Bruce Meyer, a senior managing director and partner at Beacon Pointe Wealth Advisors in Scottsdale, Arizona, is less sanguine. He tells ThinkAdvisor that he may have to resign from 401(k) plans he manages as an accommodation to the owners whose portfolio he also oversees.

“I have the obligation to make the 401(k) as cheap as possible on the investment side,” said Meyer, who’s a former ERISA attorney. He cited a recent Supreme Court ruling against Edison International, which found that the company’s retirement plan and its executives breached their fiduciary responsibility by choosing higher retail-priced investments over comparable, lower institutional-priced investments. That’s not the case with the portfolios Mayer manages outside the plan or with any potential 401(k) rollover into an IRA.

“If a plan participant comes in and says 'I have a $2 million IRA.' How do I justify selling him my advisory services versus the plan? When you’re giving advice it costs more,” said Meyer. It’s the same situation for investors who roll out of a 401(k) and into an IRA, according to Meyer. “If you’re working with both It will be a little more difficult.”