The Fifth Circuit Court of Appeals killed the Department of Labor’s fiduciary rule, and the Securities and Exchange Commission has stepped up with its own set of fiduciary proposals. The big question on everyone’s minds: Will the advice industry go back to business as usual?

According to attorneys at Drinker Biddle & Reath LLP, the answer is absolutely not.

Brad Campbell, a partner in Drinker Biddle & Reath’s Washington, D.C., office, says that since the fiduciary rule no longer applies to the advice industry — including all of its prohibited transaction exemptions — the industry has reverted to the pre-DOL versions of those exemptions.

[Image credit: Bloomberg]
[Image credit: Bloomberg]

“Just because we are going back to the old rule doesn’t mean we’re going back to the old interpretations much of the industry had fallen into,” Campbell says. “I think over time, 20 or 30 years, we’ve fallen into using a shorthand that is probably not correct. If you have an adviser on the sales side, if you are a registered rep or insurance agent or someone in that capacity, this person is not an ERISA fiduciary, even when advising 401(k) plans every day on their menu. If you are an RIA, you were viewed as an ERISA fiduciary. That’s not what the law said, but that’s how a lot of folks came to perceive the 1975 regulation. We are not going back to that.”

See also: How plan sponsors can be better fiduciaries (with or without the rule)

Campbell recently spoke with the Department of Labor about how the industry is applying the old five-part test, and according to Campbell, the department will apply it as written. Anyone providing individualized advice on a regular basis is considered a fiduciary. If it is one-time advice, like the sale of an annuity, it is not considered fiduciary advice.

The five-part test applies if the person gives advice to a plan about whether to buy, sell, or invest in securities or other property, does so on a regular basis, and that those services serve as the primary basis for investment decisions in the plan. It also states that the advice will be individualized to the plan based on the particular needs of the plan regarding investment policies or strategy, diversification and overall portfolio composition.

In the past, broker-dealers providing advice to a 401(k) plan were not considered fiduciaries even though they regularly give advice to ERISA plans.

“For 401(k) plans and other ERISA plans, at least, even if you are a registered representative or insurance rep, if you are regularly providing advice, that is going to trigger fiduciary status,” Campbell says.

Campbell adds that “in reality, what is happening is advisers to plans are going to remain fiduciary advisers even though we are reverting to the old test.”

That is not the case for rollover advice. Before the final DOL rule came out in 2015, most rollover advice was not considered fiduciary advice because it was rendered on a one-time basis.

“That opinion said rollover advice is not fiduciary advice, with the exception of when the rollover is being advised on by someone who is already an adviser to the plan,” Campbell says. Then it would be considered fiduciary advice.

The Department of Labor issued a Field Assistance Bulletin for enforcement policy after the fiduciary rule was vacated, stating that there are transitional issues resulting from the Fifth Circuit ruling and they won’t pursue prohibited transaction enforcement action against those following the best interest contract exemption as long as the impartial conduct standards are followed.

Those rules only apply to nondiscretionary investment advice, says Fred Reish, partner in Drinker Biddle & Reath’s Los Angeles office. If an adviser has discretion over an account, “which is fairly common in IRAs, less so in plans,” and if they accept third-party payments or variable compensation for their discretionary management of the account, in addition to an advisory fee, that can be considered a prohibited transaction, and the non-enforcement policy doesn’t apply.

“The world is changing,” Reish says. “It is important for advisers to realize that three or four years from now, what is done today will be examined, and it needs to be done with a good standard of care and mitigation of conflicts of interest.”

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