John Frownfelter believes there’s a misconception that being a “fiduciary” under the Department of Labor’s rule means offering clients the lowest cost investments.
“One of the biggest misconceptions I see with the DOL [fiduciary rule] is this whole idea that you have to invest in the lowest cost investments in order to comply with the rule,” Frownfelter, managing director of investment solutions at SEI Advisor Network, told ThinkAdvisor. Adding that, “as a fiduciary, providing the lowest cost solution is not always going to be the best solution for your clients.”
While the DOL fiduciary rule is currently in flux, Frownfelter believes the “train’s already left the station.”
The Labor Department released a proposed rule on March 1 to extend for 60 days the applicability date of its fiduciary rule, following President Donald Trump’s executive order directing the department to review the rule. The proposal, which included a 15-day comment period, would extend the rule’s April 10 compliance date to June 9.
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The 15-day comment period on the proposed delay recently ended. DOL is also taking comments for 45 days on a list of questions about the impact of the fiduciary regulation and the exemptions.
“Whether or not Department of Labor fiduciary rule actually gets delayed or gets revoked or whatever they do with this new administration, I think the situation is that a lot of firms have put into action a plan to conform with or deal with the DOL fiduciary rule,” Frownfelter said. “I think that they’re going to move forward with those actions regardless.”
According to Frownfelter, at the broker-dealer level especially, they’ve already started the process of segmenting their business into what’s DOL-compliant and what’s not.
“A lot of broker-dealers already put the wheels in motion,” he said. “They’ve already spent a lot of money. I can’t imagine them upending that today if we end up delaying it.”
This is why Frownfelter, and SEI Advisor Network, is still working on educating advisors that the rule is not “telling you that you have to offer the lowest cost solution in order to be a fiduciary.”