Activity Tracking to Become a Necessity under the DOL Fiduciary Rule


Much has been written about the proposed DOL Fiduciary proposal. Some write in favor of it; some are adamantly opposed to it. But, given the proposed status, very few are offering suggestions on how to abide by the proposal as written. From my vantage point, a couple of things are clear. First, this is going to happen. Second, 8 months is not a lot of time to get a comprehensive process implemented, so it is better to start now and tweak the process as you go. That being said, one piece of the proposal has stuck with me since the Department of Labor first released the proposal in April of last year. In an effort to make the proposal more workable, the DOL has inserted certain exemptions from the regulation. Most notably, standard financial education is categorically exempted from the rule and from the definition of advice. Education would include conversations about general plan information, general financial and retirement information, asset allocation models, and interactive investment materials (options meaning the functioning of the plan, not specific investments as it appears that IB 96-1 will be superseded if the proposal is implemented as proposed). From the DOL comments to the voluminous feedback, we know that the education carve out will not be going away.

For an advisor working in this space, it should be clear that the intent is to make a majority of your actions fall under the fiduciary laws. The key for advisers is how to mitigate potential exposure given the exemptions. As with other exemptions under ERISA, it would appear that the burden of proof will fall on the entity claiming exemption. This means that you will need to keep diligent records regarding your meetings with participants. You will need to track which meetings were fiduciary in nature and which meetings qualify for the education exemption. This tracking should include who was present at the meeting, what topics were discussed, ideally any materials that were used (presentations, literature, etc.), and whether the meeting should be considered educational in nature. Just like a game of chess, you must balance proactively cutting off avenues of liability exposure while actively working to build retirement security for your participants.

Compliance departments should also be interested as the proposed regulations change the exposure for a fiduciary breach. Under the proposal, an adviser can be named in a class action suit at the state level. This represents an unprecedented expansion of legal liability that also includes activities involved in the service of IRA accounts. By isolating activities that are explicitly named as carve outs from the definition, the adviser is limiting his liability exposure. This process can also help to establish credibility to the adviser and his professionalism. While in the past it was potentially advantageous to minimize how much the adviser had in his file in the event of a law suit, the proposed rule will turn that thinking on its head overnight. Compliance departments should be enabling processes that allow advisers to continue their business while mitigating the exposure of the firm.

This tracking is not solely in the interest of the firm. A procedure that is well built will allow the adviser to continue to deliver the services for which they were hired, while protecting the firm. After all, if an adviser is tied up in depositions, arbitration, and court proceedings, then he is not serving his other clients. Clients who do not feel served tend to go elsewhere or look for reasons to complain. And complaints can lead to more suits. Like the loss of a pawn, this chain of events can snowball for the adviser and the firm.

The recent rash of lawsuits highlights the importance of this tracking. Multi-million dollar suits are the norm for fiduciary breaches today. While those are for some of the largest cases out there, it is not going to be long before a sufficient body of case law exists that litigation costs will be affordable enough for smaller players. Due to increased exposure, E&O rates are almost guaranteed to rise as this rule is implemented. (We have had conversations with a specific carrier about how to receive preferential rates using QPSteno; contact me for information:

The chess pieces are in motion. Advisers, broker/dealers, and RIAs should start to protect themselves for the benefit of their clients.