No More Time to Wait: DOL Fiduciary Rule Effective June 9, 2017



June 1, 2017

After much ado, the Department of Labor (DOL) Fiduciary Rule becomes applicable June 9, 2017.  Financial institutions and Financial Advisors must begin to act as fiduciaries regarding retirement accounts from that date forward. Although the best interest of the client is required, the DOL is not prescriptive on how to achieve compliance during the transition period which ends on January 1, 2018.  After that date, the mechanics outlined in the prohibited transaction exemptions become effective.

Many firms were caught off guard because some in the industry believed the rule would be delayed until the DOL fully responded to President Trump’s Memorandum dated February 3, 2017 which requires the DOL to determine if there are adverse effects from the rule. See our blog on the Memorandum for more information.

Some industry leaders hoped the rule would be entirely revoked or changed significantly to make compliance less burdensome. Some Firms’ efforts to comply with the rule for the original effective date of April 10th slowed and in some instances, stopped. When the notice to delay portions of the rule was published in April 2017, some firms still believed that the rule implementation would be delayed in its entirety.  Secretary of Labor Acosta declared in an op-ed published in the Wall Street Journal that there would be no further delays.

Starting June 9, 2017, the requirements for Firms and Financial Advisors when recommending any prohibited transaction are as follows:

  1. Act in the best interest of the client, which includes:
    • Prudence Standard of Care
    • Loyalty Standard
  2. Receive reasonable compensation for services
  3. Provide no misleading statements about the investment transaction, compensation or conflict of interest to the retirement investor

Disclosures, notices, websites and other requirements within each Prohibited Transaction Exemption will not be required until January 1, 2018.

What do Firms and Financial Advisors need to do going forward to comply on June 9th?

  1. Develop the roadmap to compliance – for June 9th, the transition period, until January 1, 2018, the final implementation date
  2. Develop and implement policies and procedures to supervise recommendations of prohibited transactions
  3. Ensure compensation does not put the interest of the Firm or Financial Advisor ahead of the retirement investor
  4. Educate the Financial Advisor
    • What does it mean to be a fiduciary?
    • How will the Advisor protect the best interest of the client when making recommendations?
    • What forms and documentation must be signed and stored?
    • How will the client experience need to change?

The Department of Labor has reiterated that their efforts will focus on helping a firm comply with the rule, rather than enforcing the rule, if the Firm is making efforts to comply with the rule.

We believe there will be changes in how prescriptive the DOL will be in ensuring compliance with the rule once their analysis is completed. What will not change is that the Firms and Financial Advisors will need to act as a fiduciary and put the best interest of the client ahead of the Firm and the Financial Advisor. While the initial expectations may seem intuitive, the changes needed to ensure consistency, compliance, and a great client experience are anything but simple.

This post was co-authored by Frank Kimball and Bruce Harrington:

Frank Kimball

fkimballFrank is an Expert Practitioner with the North Highland Company. He has over 25 years of experience in the Financial Service Industry. He has held executive leadership positions in Retail Brokerage, Asset Management, and Corporate Trust as well a senior member of Corporate Strategy. He helped create an award winning value-add program providing ERISA advice and proactive tools to help Financial and Private Client advisors at wealth management firms to grow their retirement practice. He has developed and managed infrastructures r sales organizations providing necessary tools to grow sales and retain clients. His primary focus is in Wealth Management, Compliance, Risk Management and Trust.

Bruce Harrington

BruceHeadshot_BruceHarrington is a consultant at North Highland in the Wealth Management and Retirement area. He has 25 years of experience in the financial services and consulting industries with expertise in both individual and institutional retirement, investment management, brokerage and wealth management.

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