Investors Can Go After ‘Fiduciary’ Advisers Even if DOL Doesn’t

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Kristen Ricaurte Knebel

The Labor Department’s focus on encouraging advisers to comply with its fiduciary rule doesn’t mean the rest of the world will wait for the government to enforce the law.

There’s always going to be a litigation risk, even though the agency will most likely be placing a “greater emphasis on assisting compliance rather than enforcement,” George Michael Gerstein, counsel with Stradley Ronon in Washington, told Bloomberg BNA.

The Department of Labor’s final rule, issued April 4, delays until June 9 portions of the Obama administration’s regulatory package that aimed to reduce the allegedly conflicted investment advice given to retirement savers. Other portions of the rule are delayed until at least Jan. 1, 2018, while the rule is under a presidentially mandated review by the agency.

The DOL said in its delay of the rule that even though there’s a cause of action for violations by advisers under the Employee Retirement Income Security Act, the DOL’s focus will be on compliance assistance before and after Jan. 1, as well as “for some time after.”

Private Enforcement

The Financial Services Institute Inc.'s David Bellaire agreed that there is a threat of litigation hanging over advisers’ heads, even as the DOL says it will focus on compliance.

The rule really invites the plaintiffs’ bar to go after bad actors, making any temporary freezes on enforcement of “limited value,” said Bellaire, who serves as executive vice president and general counsel at FSI.

Marcia S. Wagner of the Wagner Law Group in Boston told Bloomberg BNA that regardless of what the DOL does, lawyers will go after bad actors, and “that can happen before and after” the June 9 applicability date.

Striving Toward Compliance

While there might be a more compliance-focused approach from the DOL, firms should still “come up with action items and strive towards them” when it comes to fiduciary rule compliance, Gerstein said.

Investors can take some comfort in the fact that some advisers are making good-faith efforts to comply with new requirements, even as the Trump administration’s DOL reviews the rule for possible changes, he said.

“They are still better protected with firms who are making efforts to comply with the rules than those that are not,” Gerstein said.

There is a lot of political uncertainty around the rule during this review period, and the best way to square that with the June 9 and Jan. 1 deadlines is “good-faith compliance,” Gerstein said.

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

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