More than six months after the Labor Department's fiduciary rule was partially implemented, anecdotalevidence is emerging that industry is struggling to comply with newrequirements on investment recommendations in qualified retirementaccounts.

Specifically, brokers and advisors are failing the rule's bestinterest standard when advising on distributions fromemployer-sponsored retirement plans and rollovers to IRAs,according to Fred Reish, a partner at Drinker Biddle & Reathand chair of the law firm's Financial Services ERISA team.

“I'm concerned folks are short-circuiting processes in a waythat isn't compliant,” Reish said during a recent webinar.

The rule's impartial conduct standards, which were implementedlast June, require that advice on qualified retirement accounts begiven in investors' best interest. Brokers and advisors can onlycharge reasonable fees, and they are prohibited from givingmisleading information.

While compliance with the full extent of the rule's warranty anddisclosure requirements has been delayed until July of 2019, any recommendationto roll 401(k) assets into an IRA is considered a fiduciary act,and must be done in an investor's best interest.

To satisfy that standard, a rollover recommendation must bebacked by a comparison of investment fees in 401(k) plans to feesin IRAs.

Reish suggested that at least some investment professionals arenot doing that legwork.

One explanation for the oversight is a lack of access to planinformation. But the fiduciary rule accounts for that possibilityby saying advisors can use Form 5500 plan information data, oropen-source benchmarking on retirement plan fees, to back arollover recommendation.

When advisors use that option in lieu of comparing of a specificretirement plan's fees, they are expected to disclose that toinvestors.

“I haven't seen prudent and diligent efforts to obtain (plan)information before that warning is provided,” said Reish, who saidsuch oversight amounts to a violation of the impartial conductstandards, even if done inadvertently.

The Labor Department has said it won't enforce the fiduciaryrule, so long as providers are making a good-faith effort tocomply.

That policy may be encouraging a lackadaisical approach tocompliance, said Brad Campbell, a partner at Drinker Biddle andformer head of Labor's Employee Benefits SecurityAdministration.

“People can get a little too complacent on where DOL is onenforcement,” said Campbell. “I haven't seen DOL enforcementactivity, but that doesn't mean it isn't coming. There is a riskDOL could say you are not acting in good faith if you are notmaking the effort” to compare fees.

Full speed ahead for Labor, SEC

The confirmation of Preston Rutledge as assistant secretary of Laborand head of EBSA means the Department is now fully engaged inits analysis of the rule, ordered by President Trump, and craftingpotential revisions.

The Drinker Biddle attorneys expect regulators to floatpotential revisions in a matter of months, and expect a proposal tobe released by the fall of 2018. That would allow adequate time fora public comment period in order to meet the July 2019deadline.

Even then, Reish said he expects the rule won't be implementedfor another six to 12 months, meaning industry would not have tocomply with a full, final rule until 2020.

Meantime, the Securities and Exchange Commission, which is nowfully staffed with five commissioners for the first time since2015, has made crafting its own fiduciary rule a priority. Aproposal is expected as early as the second quarter of 2018.

The financial services and insurance industries haveconsistently lobbied for the SEC to be the lead regulator indefining and enforcing a uniform fiduciary standard.

Industry continues to lobby for a fiduciary standard that isenforced by regulatory agencies and not private class-actionclaims. The Labor Department's fiduciary rule, which was finalizedbefore the end of the Obama administration, included a prohibitionagainst class-action waivers in contracts with investors.

But under the Trump administration, Labor has said it will notenforce the prohibition against class-actionwaivers.

Reish said he expects that both the SEC rule and a revised LaborDepartment rule will allow investment providers to writeclass-action waivers into contracts.