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Veres Pokes Hole in DOL Rule, Offers Solution

April 26, 2017

The Department of Labor’s fiduciary rule is flawed in several regards, but the reason it runs over 2,000 pages is in large part because it puts the burden of enforcement on trial attorneys, Bob Veres insists in Advisor Perspectives.

There are several problems with the rule, which purports to force retirement brokers to put clients’ interests first but faces a possible replacement or repeal, according to Veres, a consultant to the wealth industry. Chief among its problems is its intent to accommodate commission-based broker dealers, he writes.

The best interest contract exemption provision, which lets brokers sell some commission-based products after signing a best-interest agreement with the client, makes it difficult to determine what constitutes “unreasonable” commissions, according to Veres.

Nonetheless, he writes, the rule can be summed up relatively easily by stating that the Employee Retirement Income Security Act that governs private-industry qualified retirement plans now also applies to advice on individual retirement accounts, including advice on IRA rollovers. This statement would even cover commission-based transactions, according to Veres. Anyone wishing to collect a 7% commission on non-traded real estate investment trusts, for example, would be inviting the scrutiny of class-action lawyers, he writes.


But a major reason why the rule is so long is exactly because the DOL is “abdicating” its enforcement burden to plaintiff’s attorneys.

The DOL never intended to use its own resources to enforce the rule — hence the requirement for advisors to document everything, according to Veres.

By Alex Padalka
  • To read the Advisor Perspectives article cited in this story, click here.