The Labor Department issued its first round of responses to Frequently Asked Questions about the fiduciary rule released earlier this year. The Labor Department plans on sending a total of three rounds of responses to FAQs. This first round of Q&A (34 questions and answers) are related to the best-interest contract exemption and prohibited-transaction exemption. The second round of FAQs is expected to be shared soon according to Ms. Borzi, the assistant secretary of labor at the department’s Employee Benefits Security Administration. You can view the entire FAQ document here.
Last week, Merrill Lynch announced that it would eliminate all commissioned IRA accounts in response to the DOL fiduciary rule. Only time will tell if other firms take such drastic measures to comply with the new legislation. In any case, the DOL fiduciary rule brings with it numerous challenges and raises two critical questions:
In our recent blog series on complying with the DOL Fiduciary Rule, we’ve already explored three of the four actions advisors can take to remain compliant with the new legislation: closing accounts, transitioning to a robo-advisor and converting to a managed account. This post is focused on the only compliance action that will allow commission accounts to stay “as is:” executing a Best Interest Contract Exemption.
While the Department of Labor’s Fiduciary Rule was created to protect investors, it has left advisors and their firms frustrated, fearful and unsure of how to proceed. A recent InvestmentNews article reported that broker-dealers are opting to no reveal new DOL-compliant commission schedules out of fear that advisors would bolt. Similarly, an OnWallStreet article published on Wednesday cited a Fidelity study which showed that one in five advisors are reconsidering their careers.
The new DOL Fiduciary Rule, which was announced this spring, takes effect next April. At that point, all firms and advisors must be in compliance with the new legislation. Since then, we've been working with many of our clients to develop their customized compliance solutions and have made many enhancements to our DOL Advisor Toolkit, which will be publicly debuted in early October. We've compiled a list of must-have resources for your firm to better understand the new DOL Fiduciary Rule. In the meantime, don't forget to register for our upcoming product reveal webinar, featuring the IFS DOL Advisor Toolkit.
So, we finally have the ruling, after much anticipation and prognostication (including from us at IFS) the DOL Best Interest Contract Exemption ruling has been published, all 317 pages of it. If you need a little sleep aide, the entire document can be found here. The general consensus is that the final ruling is a reduction in burden to the financial services community, while still staying true to the clear objective to protect the individual investor and their retirement assets from excessive fees or unsuitable investment products.
With the final DOL fiduciary rule likely to be finalized within the coming weeks, financial services firms must start planning their compliance strategy. A recent study conducted by the Financial Services Institute with Oxford Economics estimated that the new rule will cost nearly $3.9 billion to implement. From implementing new systems to adding personnel, firms will need to overhaul their infrastructure and processes to ensure compliance with the new standard.
Have you spent a lot of time and resources trying to understand and prepare for the upcoming Department of Labor Best Interest of the Client Exemption proposal that will be finalized later this year? We sure have—because it will create big changes for our clients and the financial services landscape. The proposal means significant changes for almost all parts of your organization: