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Dalbar Releases New Online Fiduciary Readiness Test

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Dalbar has created a free online test to help advisors determine whether they are prepared to comply with the Department of Labor’s fiduciary rule’s June 9 compliance date.

The self-study training program can be completed in less than one minute with online video training available for advisors who need to catch up, the financial services research and evaluation firm said Wednesday.

“Thousands of advisors who are now the broker of record for IRAs or ERISA plans become fiduciaries overnight,” Dalbar said in a statement announcing the online test. “The new regulations require major changes in sales practices, compensation limits and how rollovers are handled.”

The first question asks: “What areas must change for the June 9 implementation of the fiduciary rule?”

The rule will require advisors to “immediately adopt a formal process” to discover what a client’s best interests are and make recommendations based only on the client’s best interests, Dalbar said.

“While this process may not be entirely new to many advisors, the scope of discovery, required documentation and the use of the process with every client will be a challenge for most advisors.”

Labor’s rule also prohibits excessive compensation, requiring the advisor to “test and show that compensation from each client is reasonable,” the Boston-based company said. Advisors must test new and existing IRA and ERISA business.

Rollover recommendations are also redefined as fiduciary advice, which “means that a rollover may only be recommended if it is shown to be in the client’s best interest,” Dalbar states. “It will be challenging to show best interest when the fees and expenses of the IRA exceeds the costs of being in the plan.”

What’s more, the Labor Department’s “no enforcement policy” comes with a catch.

The policy runs until the final effective date (currently Jan. 1, 2018, subject to potential changes and delays), but the policy “does not prevent clients and their attorneys from taking arbitration or litigation action against noncompliant advisors,” Dalbar warns.

Advisors must be “working diligently and in good faith to comply,” Dalbar says. 

— Check out Wall Street May Get New Chance to Gut DOL Fiduciary Rule on ThinkAdvisor.