Major change is on the horizon for the financial advisor-client relationship.  On June 9, 2017, the Department of Labor (DOL) Fiduciary Rule went into partial effect. Currently, the Rule’s full implementation is scheduled for January 1, 2018. (However, on June 30, 2017, DOL published a Request for Information related to the Fiduciary Rule, seeking public comment regarding extending the January 1, 2018 applicability date among other Rule-related matters. This signals that DOL may now be looking to make changes to the Rule.)

The DOL Fiduciary Rule was originally proposed under the Obama administration to better protect investors and ensure transparency between clients and advisors, brokers, planners and insurance agents.  Under the Rule, advisors working with retirement plans or giving retirement advice will no longer be held to a suitability standard.  Instead, advisors will be held to a heightened fiduciary standard.

Under the previous suitability standard, if an advisor found an investment that met the client’s particular need, i.e. a suitable investment option, then the suitability standard was met. In contrast, the fiduciary standard requires advisors to find the best investment option for the client.

The Rule also requires advisors working on commission to provide clients with a disclosure agreement called a Best Interest Contract Exemption (BICE).  The BICE will show the advisor’s commission rates and special bonuses for the different investment options.  In addition, all compensation paid to the advisor must be disclosed.

Retirement plans covered by the rule include defined-contribution plans such as four types of 401(k) plans, employee stock ownership plans, 403(b) plans, simplified employee pension (SEP) plans and savings incentive match plans (simple IRAs).  In addition, defined-benefit plans such as plans promising a certain payment according to the plan document and pension plans are included.  Furthermore, the rule includes individual retirement accounts (IRAs).

Providing educational information to a client such as general investment advice based on the client’s income or age is not included under the rule. Nor is a client's specific investment request.  

Martin Pringle’s attorneys will be watching the public comment period closely and updating clients if and when DOL decides to make further changes to the Rule or implementation schedule.