Does Advising On IRAs Make You A Fiduciary And Can A Computer Model Absolve You Of Your Fiduciary Responsibility? Hot
With the potential to stir up the fiduciary world, I spent some time researching the new rule. Turns out, a third party must certify the computer model. Still, adopting a certified computer model would swing the doors wide open to the lucrative retirement plan market while limiting liability risk.
ERISA 408(g) raises many questions. For instance, since when do you have to be a fiduciary to advise on IRAs? Is this just a marketing ploy to enable broker/dealers to sell third-party services? And, if a computer model can provide fiduciary advice to plan participants, what value does advice offered by humans have?
The advice had to be dispensed within what is called an eligible investment advice arrangement that is:
- Authorized by a plan fiduciary
- Subject to annual audits by an independent third party
- Disclosed by advisors to plan participants and beneficiaries according to a model Fiduciary Advisor Disclosure
As a result of industry comments explified by this letter, the
Then, on October 25, 2011, the DOL issued final regulations which went into effect on December 27, 2001, including the 408(g) computer model exemption. But the definition of a fiduciary—which includes the DOL’s intended application to advisors on IRAs—is still in limbo, as we all know.
Blaine Aikin, CEO of Fi360, creator of the AIF and AIFA designations, says that technically, an IRA is not an ERISA account. But there are proposed transaction rules in the IRS code that would apply to IRAs. The IRS has delegated responsibility to the DOL for oversight of those prohibited transaction events. The computer model would be one way to step in the middle of the fiduciary but that, currently, the regulations do not extend to IRAs.
Lou Harvey of Dalbar, the creator of the Registered Fidiciary® designation and provider of third-party certification for the computer model, who was quoted in the recent article, told me in an interview that advisors on IRAs have been considered fiduciaries ever since the Tax Reform Act of 1986. The IRS was charged with enforcement but has done nothing about it until now. The PPA gave the DOL the authority to write the rules to be enforced by the IRS.