10 Things You Didn't Know About the DOL's New Rule

In the wake of the DOL's announcement of the new fiduciary rule, many advisors were left asking--how is it going to effect me? Check out 10 things you didn't know about the DOL's new rule.

1. It doesn’t start immediately.

The rule includes a “delayed implementation clause” which gives firms plenty of time to prepare for compliance. It isn't until January 1st, 2018 that firms are expected to be to completely compliant with the new law. However, by April, 2017 advisors are expected to be acting as fiduciaries, disclosing potential conflicts of interest to clients, and complying with the best interest standard.

2. Its “fiduciary standard” covers any type of retirement-planning advice.

Some advisors may wonder if the new law applies to their firm. Although the rule is long and convoluted--clocking it at over 600 pages--the simple answer is this: if you offer any type of retirement advice, this law applies to you. This includes advisors offering advice to groups (i.e. an employer-sponsored retirement plan) and individuals. Individuals include plan participants and IRA owners.

3. Retirement-planning advice doesn’t cover everything .

Lawmakers wanted to ensure that the new rule wouldn’t stop advisors from providing educational services. So advisors don’t have to maintain a fiduciary standard when providing general education on retirement saving. This includes things like newsletters, presentations, marketing materials, and any other information not considered a “recommendation.”

4. It doesn’t change the commission advisors can earn, but does require a commission disclosure.

Originally, some advisors were concerned that the new rule would affect their ability to make a commission on proprietary products. While this law may make it more difficult to sell commission-based products (since all advisors must meet the fiduciary standard), it doesn’t ban commissions. In order to sell clients commission-based products, all advisors must do is have clients sign a disclosure, called the Best Interest Contract Exemption (BICE).

5. Prospects don’t have to sign a disclosure immediately.

When the initial bill was proposed in April, 2015 many advisors feared that the BICE would scare away prospects. Luckily, law-makers took this concern into consideration and changed the rule so that prospects don't have to sign a BICE until they receive account-opening materials.


6. Current clients don’t need to sign a new contract.

If you’re worried that signing new disclosures may send your current clients running, fear not. The DOL decided that an email notifying clients of the changes would suffice. There’s no need to have current clients resign anything!

7. It won’t have a huge impact on RIAs.

Since RIAs already act as fiduciaries, they won’t face much change in the wake of the new rule. In fact, most RIAs will only have to implement small operational changes in order to remain compliant under the new rule. RIAs will need to make changes to their policies and procedures, adjust client agreement documents, and provide additional disclosures in account-opening materials in order to be compliant with the new law.

8. It could still cause some problems for RIAs.

While RIAs may be have dodged a bullet in terms of large-scale compliance changes, they could experience other adverse effects. Namely, a large influx of competitors due to the stricter regulations. Many brokers who don’t want to use the BICE will become RIAs in order to avoid the strict regulations.

9. It will drive the shift towards fee-based billing.

While there already has been an ongoing shift towards fee-based billing, the DOL’s new rule will further push the industry in this direction. Because comission-based sales will require a BICE, many advisors will transition to a fee-based model.

10. A paperwork trail will be more necessary now than ever before.

One of the biggest changes resulting for the rule will be the amount of paperwork advisors are required to do. The new fiduciary standard puts advisors in a position for potential liability. In order to prove each decision made was made within the client’s best interest, it’s important to keep accurate records and sufficient paperwork. This will help advisors avoid a lawsuit if the market takes an unexpected downturn.