Overview

Last Friday, June 9th, was the effective date of the Department of Labor Fiduciary rule. This is a landmark rule that will potentially change the way financial services are provided.  It will essentially elevate all financial professionals who work with retirement plans or provide retirement planning advice to the level of a fiduciary, requiring these advisors to act in the best interest of their clients.  In addition, all compensation that is paid to the fiduciary must be clearly disclosed.

What impact will this rule have on D3 Financial Counselors and our clients?

Because we have always acted in a fiduciary capacity with all of our clients, there will be no change to our current clients.  The biggest change this will have on our business is increased documentation and compliance costs. The biggest area of increased documentation will be when we recommend that a 401k or IRA rollover for new clients is in their best interest, especially if their fees are increased because of this recommendation.  For D3 clients, the answer is very straight forward: we provide valuable portfolio management, financial planning, and tax expertise.  In addition to increased documentation, there may be some contract and disclosure requirements that we will need to comply with. We are currently working with SEC contract lawyers to review our contracts to ensure they are in compliance with these new regulations.

Who will this rule affect the most?

This rule will have a greater impact on brokers, who are paid on commission, and especially brokers who were not subject to a fiduciary standard prior to this rule. Additionally, insurance companies that sell annuities will likely adjust their practices.  Due to the potential conflict of interest that commissions present, there will likely be a greater regulatory burden for these advisors.

Are all brokers now required to act as a fiduciary?

No.  This rule will impact brokers who provide retirement plan advice.  Retirement plans include defined contribution plans (401k, 403b, SEP & SIMPLE IRAs), defined benefit plans (pension plans), and IRAs.  It is important to note that this rule doesn’t apply to non-retirement accounts such as 529 accounts and after-tax brokerage accounts, even if these accounts are intended for retirement.

Is this good or bad for me, the client?

We think it is both good and bad.  The best part of this rule is the fact that more advisors will be required to act in your best interest, which is a big win for consumers.  The downside is the increased regulatory cost associated with implementing this rule, which unfortunately many firms will pass on to the consumer.  Because we have always have been fiduciaries, our increased compliance costs are expected to be minimal.  We do not expect any fee increase or significant change as a result of this rule.

— Adam Glassberg CFP®, CIMA®