The Applicability of the DOL Rule to a Fee Only RIA

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Written by: Brian Young

Unless you have been living under a rock, you are already aware that June 9, 2017 marked the official compliance effective date of the DOL Rule. Although advisors have until January 1, 2018 to be in full compliance of the new rule, it is recommended that you get started today.

I have been asked multiple times about the applicability of the DOL rule to a fee only RIA. Just because you do not collect commissions via mutual fund or insurance sales does not mean that you are safe from the DOL rule. Yes, as a fee only RIA, you are in good shape because you are already held to a fiduciary standard under the Advisers Act. However, the DOL rule expands the definition of a “fiduciary” as it relates to retirement plans and accounts. The most common scenario is when an Advisor recommends a retirement account rollover. In a rollover situation, there are additional disclosures and documentation practices that Advisors will need to implement to comply with the DOL rule. As it relates to fee based RIAs, I will focus my conversation on the level fee fiduciary exemption.

So who is a level fee fiduciary? Per the DOL rule, it is an advisor that provides services based on an AUM or fixed fee that does not vary based on the recommended investments. I think most people would agree that a fee based account versus a commission based account better aligns the interests between the Advisor and client. However, the DOL rule seeks to cover the conflict of interest that potentially lies in the rollover of a retirement account. More specifically, the scenario where the Advisor is able to generate revenue that they would not receive if not for the account rollover. Here are a couple scenarios to consider:

Scenario 1:


Your client has an ERISA retirement plan account through their employer, XYZ Corp. They are making a career change and starting a new job with ABC Corp. They reached out to you to help decide what they should do with their XYZ Corp sponsored retirement account. You recommend that the client should rollover their retirement plan account into an IRA account.

Scenario 2:


Your client has an IRA account that is held in a commission based account. You recommend that they rollover this account into a fee based account.

In these scenarios, here are a few best practices to make sure that you adhere to the level fee fiduciary exemption. You will need to:

  • Acknowledge your fiduciary status through a written notice to your client.
  • Abide by the impartial conduct standards:
  • Act in the best interest of the client.
  • Charge reasonable compensation.
  • Do not make misleading statements.

    • In both account rollover scenarios, it is important that you also document how you are adhering to the impartial conduct standards. Here are few questions that you should answer and keep saved in your client files:

  • Why was the account rollover recommendation in the best interest of the client?
  • What other investment options are available to the client besides an account rollover?
  • What are the fees and expenses in the previous account versus the fee based account?
  • What are the level of services or investments made available under the previous account versus the fee based account?

    • If you have any additional questions send us an email!