The U.S. Department of Labor’s fiduciary rule will become applicable this month, and it will have major effects on financial services delivered to the retirement market.
The DOL rule expands the applicability of the existing fiduciary standard for recommending products to retail individual retirement account customers, which means advisors must always act in the best interest of their customers, as defined by the DOL rule.
As a result, distributors are planning to change products and business processes to eliminate conflicts of interest, implement a best-interest sales process and efficiently achieve compliance.
Many distributors are actively “narrowing their product shelf,” which means fewer products for advisors to sell.
Under the DOL rule, distributors are reducing the number of annuity products, fund families, share classes and specific products for various customer types. For example, some broker-dealers have stopped offering L-share variable annuities on their platforms and this has led to some manufacturers pulling their L-share class for their variable annuities from the market.
The DOL has created a narrow contract exemption from the best interest standard, along with a provision letting consumers use private lawsuits to respond to possible violations of DOL requirements.
The private right-of-action provision within the best interest contract exemption, or BICE, provision puts more due diligence obligations on firms hoping to reduce the risk of litigation.