After a seven-year journey through the legislative process, the Department of Labor fiduciary rule proposed by the Obama administration in 2010 finally went into partial effect on June 9, 2017. This rule – arguably the most significant to affect the financial services profession in two decades – becomes fully effective on January 1, 2018.
At the core of the DOL rule is the requirement for advisors to act as fiduciaries and work in the best interests of their clients. This new standard of accountability pertains only to retirement accounts like 401(k) and IRA plans. In an article in Forbes Magazine, Jamie Hopkins, Associate Professor at The American College of Financial Services offers an overview of how retirement advisors must now operate.
“The advisor must act with the skill, due diligence and knowledge expected of someone familiar with the responsibilities of being an advisor,” Hopkins says “Conflicts of interest must also be avoided.”
The DOL rule also compels companies to charge only a reasonable fee for their advisory services, and most organizations are reviewing their fee structures in light of the new law. Hopkins says consumers have received, or soon will be notified, of new fees, products, and services. “Certain fees for mutual funds, annuities, and other investment options have already been reduced substantially since the rule was announced, and some product fees decreased even more on Friday, June 9,” he says. He anticipates fees to continue to change throughout the rest of 2017.
To conform to the fiduciary rule, some organizations are offering a wider variety of services, and others are reducing their services and product offerings. “Some consumers might have to start looking for a new financial advisor in order to find all the services and investment options they desire,” Hopkins explains.
While fees may fall, the overall cost of financial advice could rise as companies pass on the increased costs for compliance and liability to their clients. “Fiduciary advisors cannot charge more than a reasonable fee for their services; however, that does not mean that their advice will be cheap,” says Hopkins.
More needs to be done to ensure that businesses are serving clients in a manner consistent with the new rule, says Hopkins. “Just because the rule is now in place does not mean that all advisors have the education, process, technology, and services to meet the demands of a fiduciary standard,” he says.
The future of the rule is uncertain – the Trump administration opposes the rule and the House of Representatives recently passed a bill to terminate it. If that happened, Hopkins says the rule would be hard to roll back entirely. “Even if there are subsequent changes to the rule, it is likely that some aspects of the fiduciary standard will stick. Once the toothpaste is out of the tube, it is impossible to squeeze it back in,” he says.
Keeping up with changes like the DOL ruling can be a challenge for advisors. Education is the best way to stay abreast of important rulings, keep your practice up-to-date, and be sure you’re complying with important legislation. Learn more about what it takes to thrive in this new landscape. Please watch our on-demand webcast archive with Professors Dr. Craig Lemoine, CFP®, and Jamie Hopkins, Esq., MBA, LLM, CLU®, RICP®, of The American College of Financial Services. In this hour-long event, the pair examine the state of the financial services profession approximately one month after the DOL rule has taken effect.