WASHINGTON – As the requirements of the new fiduciary rule begin to take effect next April, and then more fully in 2018, the Department of Labor will rely on its staff lawyers and investigators to carry out enforcement, Labor Secretary Tom Perez says.

The agency plans to evaluate broker-dealers’ policies and procedures on retirement advice, and has vowed it will be “closely monitoring” institutions as they roll out new policies and procedures in the coming year.

(Bloomberg News)
(Bloomberg News)

“The enforcement of the rule that we just issued will be carried out by our agency – our Employee Benefits Security Administration,” the division that also regulates and enforces the provisions of ERISA, Perez told attendees Friday at the Society of American Business Editors and Writers conference.

While Labor Department officials have said they plan to seek voluntary compliance with the fiduciary rule, the agency is authorized to order payments to cover losses, and can also seek disgorged profits and penalties.

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We were part of the team that took down Bernie Madoff.

“We have an active docket of cases involving an array of criminal and civil violations. We were part of the team that took down Bernie Madoff. We have a team of seasoned lawyers and investigators that would be involved,” Perez said at the conference in response to questions from Financial Planning.

A BIG STICK
While the IRS also has enforcement authority regarding IRAs, the DoL wields its own big stick – it can rescind a broker-dealer’s ability to use best interest contract exemptions with investors if it doesn’t have adequate policies in place and meet the intent of the fiduciary standard. That could devastate some broker-dealers’ business models. The fiduciary rule also allows retirement investors to sue for breaches of fiduciary duty.

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Perez hopes to broaden his agency’s impact on retirement planning.

The Labor secretary, who unveiled the highly anticipated regulation last month after years of review and revisions, also said that officials at his agency “worked very collaboratively with the SEC. … When you look at our final rule, you see a lot of terms that are taken right out of a number of the provisions that they enforce. I talked with [SEC Chairwoman] Mary Jo White probably eight or 10 times,” he added.

The commission has indicated that next year it could issue rules that would expand the fiduciary requirement to all investment advice, not just on retirement accounts, which is the extent of the Labor Department’s purview.

Before his tenure ends in January, Perez hopes to broaden his agency’s impact on retirement planning. “We’re working with states that want to strengthen the retirement pillar,” such as by requiring auto-enrollment in 401(k) and 403(b) plans, he said.

Scott Wenger

Scott Wenger

Scott Wenger is group editorial director of Financial Planning, On Wall Street, Bank Investment Consultant and Money Management Executive.