Risk and Compliance Blog

5 Things to Know About the Final DOL Fiduciary Rule

Written by Bethany Murtiff | Apr 8, 2016 5:41:16 PM
This past Wednesday, the Labor Department released the much anticipated final version of its fiduciary rule. The rule raises the standards for investment advice, theoretically protecting investors’ retirement accounts.

  1. Suitable retirement advice is no longer enough. Brokers must act in their clients “best interest” when offering retirement advice. This means a ban on any commissions or financial incentives that might motivate advisors to advise against what would be in best interest for their clients. However, advisors are still permitted to recommend proprietary products.

 

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  1. Even if advice is given before a contract is signed with a client, it must meet the best interest standard. While advisors are permitted to speak with potential new clients before they sign an agreement, any preliminary advice must still be covered by that agreement.

 

  1. Customers must be made aware of their right to all information regarding fees, and compensation details must be disclosed in writing, on the company webpage.

 

  1. The new rule is being met with some criticism. According to Investment News, Kenneth E. Bentsen Jr., President and CEO of SIFMA commented. "As with the prior proposal, this final rule is voluminous and every word matters. It will take time to review the rule to determine its impact on investors and their ability to save for retirement. SIFMA has long supported a best interest standard for all advisors, yet we remain concerned that the DOL's rule could force significant changes to current relationships, which may leave clients without the help they need to prepare for retirement, at a time when we all agree that more can and should be done. While we continue to believe the Department's methodology is greatly flawed and lacking sufficient empirical basis, a poorly drafted rule could result in unnecessarily raising costs for investors while limiting their choice, a concern shared by many commentators and other regulators."

 

  1. As of April 2017, brokers will be expected to comply with the best interest standard and disclose any potential conflicts of interest. The entire new regulation will go into effect in January of 2018.

 

More details: https://www.whitehouse.gov/the-press-office/2016/04/06/fact-sheet-middle-class-economics-strengthening-retirement-security