Final Fiduciary Rule Includes Requested Changes

The final rule ‘defines a variety of investment education activities that fall short of fiduciary conduct.’

By John Manganaro | April 06, 2016
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After the better part of a decade in the making, the new fiduciary rule from the Department of Labor (DOL) has finally arrived, and on first review it appears to look a lot like the version proposed in the Spring of 2015, albeit with some important softening around the sharpest edges.

Labor Secretary Thomas Perez introduced the final regulation during a pre-release conference call with reporters on Tuesday evening, during which he stressed the final version of the DOL’s  fiduciary rule is the result of years of collaboration and discussion between government regulators and the financial services industry, especially recordkeepers and advisory firms concerned about what the rulemaking will do to their compensation models.  

He also stressed from the start that the DOL knows the “vast majority of men and women giving retirement advice already do right by their clients.” However, he said, “there are some powerful interests aligned against this rule, who will insist that the only good rule is no rule at all. If your business model rests on bilking people out of hard-earned money in retirement plan accounts, you don’t belong in this industry and you will not like this final rule.”

Running through what he referred to as the most important changes in the final version compared with the proposed version, Perez first observed, “We were asked to address mechanics of the best-interest contract (BIC) exemption, and we did this.”

“Industry practitioners said they were worried they would have to put the BIC in place from the very first second they were introduced to a potential new customer, even if that individual never ended up working with the firm or purchasing a service or product,” Perez explained. “Now we have confirmed that the contract can be papered at the same time as all the other paperwork associated with a new purchase or a new client relationship. It’s then and only then that you will have to execute the BIC, which can be as simple as a page or even a paragraph added to existing documentation.”

Perez said the rule’s “forward-looking point-of-sale disclosures were pretty heavily criticized, so we eliminated entirely the one-, five- and 10-year forward-looking disclosures, as well as the annual disclosure requirement. Other disclosures have been streamlined and simplified, as well.”

NEXT: DOL also addresses ‘anti-proprietary bias’