On April 6, 2016 the Department of Labor (DOL) finalized a rule (and related exemptions), commonly called the fiduciary or conflict of interest rule, intended to protect retirement savers by mandating that investment advice be in their best interest. The DOL streamlined and simplified the ‘finalized’ rule to minimize the compliance burden and ensure ongoing access to advice, while maintaining an enforceable best interest standard that protects savers. Interestingly, for the last year or so, there has been a lot written on the proposed regulations, much of it extremely critical of the rule. Many believed the rule to be unworkable, expensive to implement and potentially harmful to smaller plans and smaller investors. This criticism was coming from all directions, broker dealers and insurance companies, industry lobby groups, both political parties and sides of congress, the SEC and more.
So far most of the initial reactions to the finalized rule have been positive, that the rule has been softened substantively and less onerous that the previously proposed rule.
So will it work? My opinion is that the rule and related exemptions will help ensure that retirement savers get advice in their best interest, while minimizing the compliance burden on the many advisers who already put their clients’ best interest first. The rule defines fiduciary investment advice, while the accompanying exemptions allow advisers and their firms to continue to receive most common forms of compensation, ‘if’ they put their clients’ best interest first. Overall I believe the rule will do what was intended. It will eliminate most conflicts of interest and will allow the ones that remain to be workable via the exemption process, thus holding the advisors accountable for their conflicted advice. That’s really the spirit of these rules, to help protect participants in retirement plans and IRA investors by making advisors accountable for acting in their client’s best interest.
I had the opportunity to speak with Business Insider last week as they wanted to get our initial reaction to the rule for their Financial Advisor Insights Newsletter. Click here to read the full article: http://www.businessinsider.com/financial-advisor-insights-april-7-2016-4