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Written by: RIA in a Box
The Department of Labor (DOL) released the final version of its new " Fiduciary Rule ." Although it appears the general premise of the original proposed rule remains intact, there were a number of changes the DOL made in the final rule compared to the initial April 2015 rule proposal. The most relevant changes to registered investment adviser (RIA) firms include a best interest contract exemption (BICE) related to individual retirement account (IRA) recommendations in regards to "level fee arrangements" and pushing back the full compliance date to January 1, 2018. However, it's important to note that the full rule is 382 pages in total length and as more industry experts carefully review the release in detail there are likely to be some additional wrinkles revealed which could directly impact fee-based investment advisers.
The DOL Fiduciary Rule Impact to RIA Firms
Investment advisers already are required to act as a fiduciary to clients. Thus, the overall the impact of the new rule for RIA firms is likely to be minimal compared to broker-dealers, wirehouses, insurers, and other non-fiduciary investment product providers that traditionally charge commissions under a suitability standard. However, it's important to note that the DOL's definition of a "sole interest" fiduciary standard under the Employee Retirement Income Security Act of 1974 (ERISA) is a higher standard compared to the "best interests" fiduciary standard generally required of investment advisers. Whereas federal and various state statutes may require an RIA firm to properly disclose all conflicts of interest, under the DOL fiduciary standard, investment advisers may be prohibited from having such conflicts of interest at all.
Such ERISA requirements have always been top of mind for RIA firms that advise 401(k) or other company-sponsored retirement or pension plans , but this new fiduciary rule is likely to require a similar standard as it relates to IRA accounts. Such a requirement will have an impact on the vast majority of traditional investment advisory firms. This will be particularly relevant when an investment adviser is providing advice in regards whether a prospective or current client should rollover funds from a 401(k) to IRA account managed by the adviser. However, RIA firms are already operating with a fiduciary standard and thus while there may be some additional requirements related to the management of individual retirement accounts, this new rule should be something that investment advisory firms can adjust to without significant challenges or cost.
Also, by pushing back the implementation time line for this new rule, it's likely that a number of the ERISA regulatory experts will be sharing more detailed guidance in the coming weeks and months to better equip investment advisory firms with a clear playbook on how to best comply.
For RIA firms looking to stay up to date and explore the new fiduciary rule in greater detail, we strongly recommend that you check out the below list of the top 5 fiduciary rule experts that every investment adviser should follow.
The Top 5 DOL Fiduciary Rule Experts for Investment Advisers to Follow
1. Ron Rhoades
Dr. Rhoades is the Program Director for the Financial Planning Program at Western Kentucky University and has long been one of the industry's leading fiduciary advocates. He has been writing about and been a strong supporter of the DOL fiduciary rule for many months. There are few that have studied the proposal in more detail and he frequently offers terrific insights.
2. Marcia Wagner
Ms. Wagner is the founder and managing director of the Wagner Law Group in Boston and recognized as one of the leading ERISA law experts. She will be hosting a free online webinar on April 20 focusing on how the final rule differs from the previously proposed rule.
3. Jason Roberts
Mr. Roberts is the CEO of the Pension Resource Institute and also one of the industry-leading ERISA experts. He notes in a recent interview with RIABiz that it appears within the final rule that there "has been significant compromise on a number of issues- particularly the best interest contract exemption." He is also one of the guests on InvestmentNews free webinar titled "Going Under the Hood of the New DOL Fiduciary Rule."
4. Blaine Aikin
Mr. Aikin is the Executive Chairman of fi360, one of the industry's leading resources as it relates to fiduciary investment management. He recently gave a highly informative presentation at the 2016 AICPA Advanced Personal Financial Planning Conference and we recommend that all advisers go out of their way to hear him speak on the new fiduciary rule in the future.
5. Fred Reish
Mr. Reish is a partner at the law firm Drinker Biddle where he is a partner in the firm's Employee Benefits & Executive Compensation Practice Group, Chair of the Financial Services ERISA Team, and Chair of the Retirement Income Team. He regularly writes about the DOL fiduciary rule on his personal blog and has written extensively in the past on the rollover IRA issues related to the proposed fiduciary rule .
Looking Ahead
As RIA compliance consultants , we recommend that all RIA firms invest the necessary time in the coming months to ensure they are fully educated on the impact of the new DOL fiduciary rule. While this new rule will still be a highly debated issue within Congress and other forums, it seems very likely that this rule will ultimately be implemented and firms need to immediately begin to make the needed preparations.