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March 13, 2024 at 03:09 PM
Now that the Labor Department has sent its final fiduciary rule to the Office of Management and Budget for review, it’s a good time for advisors to review how the Certified Financial Planner Board of Standards’ Code of Ethics and Standards of Conduct dovetail — or not — with Labor’s plan.
Leo Rydzewski, CFP Board’s general counsel, notes that ”a CFP professional who provides covered retirement investment advice will be required to comply with the DOL’s new fiduciary rule once adopted.”
ThinkAdvisor caught up with Rydzewski recently to discuss Labor’s new fiduciary plan as well as the insurance industry’s complaints. Some answers have been edited for length.
“The issues that the DOL proposal raises have been discussed and debated for more than a decade,” Rydzewski said. “The time has come for the DOL to issue the final rule.”
THINKADVISOR: Could you explain how CFP Board’s fiduciary code of ethics differs or mirrors the Labor Department’s proposed new fiduciary rule?
LEO RYDZEWSKI: The fiduciary duty in CFP Board’s Code of Ethics and Standards of Conduct is like the fiduciary duty set forth in the Department of Labor’s proposed Retirement Security Rule. CFP Board’s Code and Standards and the DOL’s proposed fiduciary rule both have a duty of care and a duty of loyalty. They also both apply to one-time advice, including rollover recommendations.
The primary difference is that CFP Board’s fiduciary duty applies to the individual advisor while the DOL’s proposed fiduciary rule applies to both the advisor and the advisor’s firm.
In addition, while CFP Board’s Code and Standards does not have prohibited transactions or prohibited transaction exemptions like those that apply to the DOL’s proposed fiduciary rule, CFP Board’s Code and Standards requires CFP professionals to comply with the laws, rules and regulations that govern their professional services.
Therefore, a CFP professional who provides covered retirement investment advice will be required to comply with the DOL’s new fiduciary rule once adopted. The DOL’s proposal, like the Code and Standards, does not prohibit advisors from earning commissions.
Do you think Labor’s new rule needs to be revised in any way?
The DOL does not need to revise the proposed Retirement Security Rule in any material way.
The proposal effectively addresses the concerns that the United States Court of Appeals for the Fifth Circuit raised in vacating the prior version of the rule. However, CFP Board supports the DOL clarifying how the new rule will apply in practice. For example, CFP Board requested that DOL clarify that the term “recommendation” is consistent with how the term is interpreted in guidance from the SEC or FINRA.
In addition, CFP Board requested clarification on the required documentation for rollover recommendations.
These modifications are not extensive. From CFP Board’s perspective, the DOL’s proposed Retirement Security Rule provides meaningful consumer protections and is ready for adoption as is. If implemented, the DOL rule will have a significant positive effect on retirement security for the American public.
What are your thoughts on insurance industry arguments against Labor’s rule?
