How to Proactively Prepare for the Department of Labor Fiduciary Rule

There is great uncertainty about what the final Department of Labor (DOL) Fiduciary rule will look like, when it will come out and how long firms will have to implement the requirements.   October 15th has come and gone, Washington needs to address other crises, and the DOL has received many comments to consider.  What is certain today is:

  1. Financial advisors providing investment advice to Plan Sponsors will be fiduciaries and the existing 5-prong test will be retired.
  2. The industry will need to adopt a “Best Interest” type standard that impacts not only retirement accounts, but Health Savings Accounts and Coverdell Education Savings Accounts.
  3. The entire selling process will need to be overhauled to provide and demonstrate best interests.
  4. Compensation plans will need to be reviewed and changed accordingly.
  5. The entire organization will be impacted.

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Firms are all over the board in responding to the regulations.  Some are taking proactive action steps while others are either in a wait-and-see mode or cobbling together a fragmented effort.   In its current version, significant resources and funding will be needed in a short amount of time to successfully meet the new requirements of the regulations.  Given the second quarter Financial Service earnings results, firms will have limited resources and funding.

The call to action is to start working on implementing the rule today.   We are recommending to our clients that they start the following process:

  1. Understand the current state business processes for these accounts.
  2. Access the potential impact of the proposed rules during the strategic and technology planning.
  3. Establish a Project Management Office (PMO) and start the planning process.

These steps are mission critical and can be done immediately.  A clear, well-thought-out enterprise strategy with consideration of the DOL’s actions is necessary to continue to operate a firm in a growth mode.  Mistakes are always made when major changes loom in the future and the response is to kick the can down the road and hope things change.  Yet, we all know that hope is not an effective strategy so act now in order to guarantee success.

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