The release of the new U.S. Department of Labor Conflict of Interest Rule on retirement investment advice dramatically alters the landscape of the financial services profession.
This transformation will be one of the most impactful changes to the financial services industry in the past 40 years, as it expands a comprehensive fiduciary standard to all financial services professionals dealing with IRAs and retirement accounts.
The new rule impacts the entire financial services industry, from insurance agents and broker-dealers to banks, investment advisors, employers and retirement plan administrators.
The ruling places a variety of business models under additional pressure and scrutiny, especially commission and revenue sharing models.
How will the new Conflict of Interest Rule on retirement investment advice impact your business?
New DOL Rule and Insurance Agents
Providing advice to IRA account owners about investments or distributions requires additional disclosure to clients and requires you to act as a fiduciary under ERISA.
This may change:
- The types of products available to you
- How you are compensated
- What you must know about a client’s employer plan before recommending an IRA rollover
Your business model will likely change, but do not despair. The process of delivering quality risk management and retirement advice will evolve, which may create additional opportunities with your clients. However, certain products might also have to change. For instance, variable annuities will likely require more attention and care than they have in the past. Additionally, mutual fund fees will have to be closely examined during any rollover.
Plan to:
- Develop investment policy statements that focus on client goals and objectives
- Engage in a fact finding, risk tolerance assessment, and a comprehensive financial planning process when working with retirement assets
- Consider the duties of care, loyalty, competence and diligence when making client decisions
Talk in depth with your compliance department about working with IRA accounts. Understand the best interest contract exemption (BICE) and how it applies to client engagements. Ensure you are meeting standards of care and working in your clients’ best interests.
New DOL Rule and Brokers or Broker/Dealer Affiliations
As with insurance agents, providing advice to IRA account owners as a broker or under the affiliation of a broker/dealer now requires additional disclosures to clients and will require you to act as a fiduciary under ERISA.
This may change:
- The types of products available to you
- What you must know about a client’s employer plan before recommending an IRA rollover or recommending a particular investment
Plan to:
- Utilize investment policy statements in both transactional and planning relationships. An investment policy statement can help you develop a consistent investment philosophy and assess your clients’ goals and objectives
- Work to develop a business model that aligns your actions with the best interest of your clients
Talk in depth with your compliance and training departments about how to meet the best interest contract exemption, and how mutual funds, stocks and bonds can be aligned to meet client goals and objectives. Loaded and “c share” mutual funds will likely require more attention and care than in the past.
While commissions are not banned under the new rule, there will be pressure to be compensated based on advice instead of product sales. Your business model will adapt, likely into fee-oriented retirement accounts.
New DOL Rule and Registered Investment Advisors (RIA)
Providing advice to retirement accounts continues to be subject to a fiduciary standard under the Investment Advisers Act of 1940.
- Investment advice within a retirement account will additionally be subject to meeting a fiduciary standard under ERISA
In addition to investment advice, IRA distribution advice, and products acquired from those distributions, also fall under this fiduciary standard.
Plan to:
- Learn about types and features of employer retirement plans, as the landscape may soon require you to understand more complex retirement plan features
- Talk with your compliance officer and industry groups to maintain knowledge of rule features, such as changes in fee platforms, as they take shape
Stay on Top of How DOL Rulings Affect Your Profession
Maybe you’re an investment advisor, broker dealer or insurance agent; maybe you’re all three. No matter where you stand, the financial services landscape has changed for all of us, and understanding the new Department of Labor Conflict of Interest Rule is paramount to your continued success.
The American College of Financial Services has prepared a webcast, The DOL Conflict of Interest Rule: What does it mean for you?, to cover these new developments and address opportunities and challenges for every type of financial professional.
Watch the webcast today!
