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July 03, 2017 at 08:00 PM
Like it or not, the Department of Labor’s new fiduciary rule is here. Much ink has been spilled analyzing the rule for every possible contingency, and that will not be rehashed here. Rather, it is critical for advisors to be aware of the sometimes convoluted timeline and compliance requirements of the rule. This will serve as a high-level guide to the rule’s requirements and when they will become applicable to different firms.
(Related: In Fiduciary Rule, How Do You Define ‘Reasonable’ Compensation?)
The rule can be cleanly broken out into two distinct phases of implementation: the transition period and the effective date. Each period will have differing requirements and, depending on the firm’s fee and compensation structures, will have different implications for each firm.
Transition Period
The transition period was the subject of the rule’s delay. Originally marked to begin on April 10, the transition period’s start date was pushed back to June 9.
During the transition period, the compliance requirements under the rule are fairly straightforward. The advisor is required to: adhere to the Impartial Conduct Standards; provide a written fiduciary acknowledgment; and designate a person responsible for addressing material conflicts of interest and monitoring advisors’ adherence to the Impartial Conduct Standards.
Impartial Conduct Standards
According to the DOL, the Impartial Conduct Standards are “consumer protection standards that ensure that advisors adhere to fiduciary norms and basic standards of fair dealing.” The standards require advisors to:
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Give advice that is in the best interest of the retirement investor. This includes the prudence standard, which holds that advice must meet a professional standard of care. It also includes the loyalty standard, meaning advice must be based on the interests of the customer, rather than the competing financial interests of the advisor.
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Charge no more than reasonable compensation
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Make no misleading statements about investment transactions, compensation and conflicts of interest
Fiduciary Acknowledgment
The fiduciary acknowledgment is a flexible requirement. Per the terms of the DOL, the advisor must “affirmatively state in writing that it … act[s] as a fiduciary under ERISA, the Code, or both with respect to any investment advice provided by the … advisor … with respect to any investment recommendations regarding the plan or participant or beneficiary account.”
