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RIAs, Don’t Assume You’re Already in Compliance With DOL Fiduciary Rule

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If you’re like many RIAs, you take pride in the fact that you always act in the best interests of your clients. You don’t sell high-commission products like nontraded REITs or equity index annuities. So you might be assuming that the Department of Labor’s fiduciary rule, which began its phased implementation on June 9, doesn’t apply to you.

You’re wrong.

Under the new rule, always serving each client’s best interests isn’t enough. You must also document the fact that you are doing so. I’ll leave it to compliance and legal experts to explain what you must do, how you must do it and when; my point here is to get you to understand that the new rule has important implications for you.

I mention this because I attend a lot of industry events, and I keep running into advisors who adamantly insist that the new rule doesn’t apply to them. I don’t sell commission-based products, they tell me. I charge by the hour, some say. None of that matters. The fact is that the new rule creates important obligations for advisors from an operational and procedural perspective.

Sure, you might not have to change the advice you give or alter the investment strategies or products you recommend. That’s the case in my firm, for sure. Regardless, we are implementing substantial changes in the documentation we produce. 

In particular, the new rule when fully implemented will require that advisors document why the actions we suggest to clients meet the “impartial conduct” standard. Even though many of the changes might not seem important to our clients, they may be of significant materiality to regulators when they conduct their routine examinations.

If you’re working at a large firm, you might assume the burden is on them to handle these new compliance issues. Not true: It’s your license, so make sure you know what is required of you. Anecdotal evidence convinces me that there are a number of firms wholly unprepared for the rule’s requirements. And if you’re an independent advisor operating on your own, get assistance from expert compliance consultants to confirm that you’re doing everything the way that you’re supposed to. 

The bottom line is this: If you are an advisor, you must not assume that you are in compliance with the new rule. Assuming it is fully implemented on Jan. 1 as scheduled, it represents a new way of doing business for all of us, and it’s important that we all recognize that.

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