Broker Dealers, Financial Advisors & Insurance Firms – Figuring out DOL Fiduciary Rule

The DOL Fidiciary Rule –

“This is going to be a bigger change than the industry expects…”

Investment News, Liz Skinner, reported, on May 9, 2016, how Americans won hard-fought protections regarding the purity of their retirement advice last month. Now it’s up to the nation’s financial advisers to decide whether they’ll meet the letter — and spirit — of the historic investor protection regulation. The Labor Department’s fiduciary rule is aimed at stopping the $17 billion a year the government claims investors waste in exorbitant fees. The idea is that the regulation will stop advisers from putting their own interests in earning high commissions and fees over clients’ interests in obtaining the best investments at the lowest prices. The final rule contained several important concessions to the advice industry that will make implementation easier for financial advisers. But there still appears to be enough meat to the DOL Fiduciary Rule that advisers will have litigation to fear if they can’t prove their retirement advice prioritized the client over themselves.

“This is going to be a bigger change than the industry expects,” said John Anderson, managing director of practice management solutions for the SEI Advisor Network.

The nation’s thousands of brokerage, advisory and insurance firms that impart advice within the $25 trillion retirement services market will have to adjust their operations and procedures to comply with the DOL Fiduciary Rule. Some changes will be drastic, while others will be minor, but all promise to fundamentally shift the advice landscape.

Independent Broker Dealers – Major Disruption – As the DOL Fiduciary Rule begins to take effect next April, all financial advisers will be required to recommend what is in the best interests of clients when they offer guidance on 401(k) plan assets, individual retirement accounts or other qualified monies saved for retirement. The rule does not apply to after-tax investment accounts that may be earmarked as retirement savings. Independent broker dealers, who currently operate under a less stringent standard that only requires that investment advice be “suitable,” face the greatest disruption. They’ll need to craft new administrative steps and invest millions in technology and training to meet the rule’s requirements. Many advisers will face changes in how they are paid.

The DOL Fiduciary Rule doesn’t ban commissions or revenue sharing, but it requires advisers who accept them to have clients sign a best interest contract exemption, or BICE. It pledges the adviser will act in the client’s best interests and only earn “reasonable” compensation. The exemption also must disclose information to clients about fees and conflicts of interest. Investors with such a contract in place will be able to sue their advisers in court if they believe their interests haven’t come first.

That threat of increased liability will push some advisers away from a long tradition of charging clients based on transactions, to a compensation method that carries lower liability risks, that of billing clients a set fee. “Financial advisers will have to have conversations with many clients about what they want to do,” said John Taft, CEO of RBC Wealth Management. “Certain clients may elect to be guided to fee-based accounts.”

But fee-based accounts often don’t make economic sense for firms if the accounts have low balances, so many advisers are expected to drop undersized retirement accounts. Regardless of the path advisers and clients decide on, there will be compliance costs and a lot of documentation and monitoring, broker dealer executives said. Read More>>>

Posted in: Independent Broker Dealer News

Leave a Comment (0) ↓