After six years of working on how to embed protections for American retirement savers, the Department of Labor (DOL) has finally issued its long-awaited final fiduciary rule. Extensive public feedback from earlier drafts of the rule (nearly 400,000 comments and four days of public hearings) delayed its passage as they worked out some of the kinks and details. The new rule amends the definition of a fiduciary with the intent to reduce conflicts of interest by those who provide retirement investment advice. Last year, the Obama administration estimated that imposing a new fiduciary standard would save investors close to $40 billion over the next ten years. This rule may be the most significant update to retirement advice regulations since the passage of the Employee Retirement Income Security Act (ERISA) in 1975.
Implementation of the rule is phased to allow firms time to comply. The new definition of fiduciary will go into effect one year after the rule is published in the Federal Register — it’s expected to be published this month so the rule will go into effect April 2017 — but with an additional eight months for firms to fully comply with the conditions of the exemptions. Full compliance will be required as of January 1, 2018.
The final rule identifies anyone who receives compensation for making investment recommendations that are individualized or directed to a particular plan sponsor, plan participant, or IRA owner a fiduciary, as well as establishing what qualifies as fiduciary advice. The rule specifies that investment and retirement planning education are not included in the definition of advice, meaning that an advisor can provide education without triggering fiduciary duties. One of the most significant changes from the earlier proposed rule is the clarification that marketing or merely recommending that a client hire an individual to provide investment advisory services is not a fiduciary act.
The final rule includes two significant exemptions that will continue to provide consumer protections while allowing advisors to continue some common practices. The Best Interest Contract Exemption (BIC or BICE) makes it possible for firms to continue to rely on current compensation and fee practices provided that they meet certain conditions to mitigate conflicts of interest, beginning with acknowledging fiduciary status and disclosing basic information about costs and any conflicts of interest. The Principal Transactions Exemption (PTE) allows fiduciaries to buy or sell recommended investment products from their own inventory, provided the advisor adheres to impartial conduct standards and acts in the customer’s best interest.
At Arnerich Massena, we are proud that we have always been ahead of the curve, acknowledging fiduciary status since our inception and offering independent, unbiased advice to retirement plans. We are pleased to see that all retirement plan advisors will now be held to a higher fiduciary standard.
To read the Department of Labor’s Fact Sheet on the new rule, visit:
The DOL has also issued a chart illustrating the changes from the 2015 proposed rule to the final version: