Close Close

Regulation and Compliance > Federal Regulation > DOL

Most Advisors Confused on DOL Rule’s Impact: Galvin Poll

Your article was successfully shared with the contacts you provided.

A survey of registered investment advisors (IAs) in Massachusetts finds that while most are focused on retired clients, the majority mistakenly think the new Department of Labor fiduciary rule will not have an important affect on their advisory business — demonstrating some confusion or misunderstanding as to the sweeping nature of the upcoming regulation, which goes into effect on April 10. 

The poll shows that 61% believe the new regulations will have little to no impact on their business, about 20% are unsure of the impact, 17% predict some or even a significant impact, and 2% did not indicate their opinion.

At a mininum, advisors need to notify all retirement investors of their fiduciary status by April 10, describe any material conflicts of interest and designate someone to be responsible for addressing material conflicts of interest and monitoring adherence to the new rule. (Exemptions from best interest standards will be available through the use of Best interest Contract Exemption (BICE) or principal transaction exemptions, which can be phased in through Jan. 1, 2018, when full compliance is required.)

Of the roughly 300 advisors polled in Massachusetts, 52% say that more than half their clients are retirement investors, 20% have been one-fifth and one-half of clients in this group; 15% have fewer than one-fifth in this category; and 6% say all their clients are retirement investors. Thus, the majority of advisors who participated in the survey will need to take several steps to become compliant with the new fiduciary standard in the months ahead and then follow up with more efforts through early-2018. 

“While Labor’s rule will go a long way in providing for the safety and protection of retirement assets for average investors, the survey found that the IAs who handle retirement assets covered by the rule do not believe the rule will impact them as they are already fiduciaries,” said Secretary of the Commonwealth William Galvin, in a statement.

“As my office is the principal regulator of state-registered IAs, the survey results demonstrate a need for training which this office will be providing for free to investment advisers providing retirement advice,” he added.

Fortunately, the state’s survey finds that most advisors, 75%, believe training on the Department of Labor’s fiduciary rule will be helpful. Specifically, they want to learn about the Best Interest Contract Exemption (or BICE) and how to amend their contracts to comply with the new rules, according the Securities Division of Secretary of the Commonwealth William Galvin’s office.

The new rule bars advisors, as of April 10, from receiving compensation from a third party regarding advice on retirement accounts. However, BICE permits compensation if certain contracts requirements and standards are met.

The survey shows that 86% of advisors are paid based on a percent of assets under management, while 14% receive a flat, fixed or hourly fee.

An equal number of those polled say they do – or do not – have written policies and procedures to mitigate conflicts of interest, as required by the BICE.

— Related on ThinkAdvisor: