Preparing for an Expanded DOL Fiduciary Standard

As the Department of Labor (DOL) makes changes to current fiduciary rules under the Employee Retirement Income Security Act (ERISA), retirement planning professionals must prepare to provide a new level of care when dealing with customers.

With the DOL’s Conflict of Interest Rule, Retirement Investment Advice expanding the fiduciary standard to cover investment and withdrawal advice, pension advisors, broker-dealers, insurance agents and even call center agents are bound to the new rule.

New DOL Rule Transforms the Landscape of Retirement Planning

The new rule fundamentally changes how brokerage and insurance companies interact with consumers in retirement settings. Advice and products that were previously held to a suitability standard are now framed through a fiduciary lens.

The intention of adopting the rule is to better protect consumers and address the dramatic expansion of traditional, Roth and rollover IRA dollars since the initial application of ERISA in the 1970s and 1980s.

Additional justification for the new rules stems from consumers’ inability to discern between a financial advisor, who currently holds a fiduciary duty, and a broker or agent, who may not.

Fiduciary Standards: Your New Duties

While the former standard of care was based on suitability, retirement advisors worked according to a set of rules that considered a client’s risk profile, age, time horizon and liquidity when suggesting the best retirement options.  

However, the new fiduciary standards are more obtuse as they align interests of a principal and agent, rather than meeting specific standards.

In other words, under the new rule you will no longer be able to simply check off boxes to meet a standard when recommending a retirement product.  

In lieu of a checklist defining your client’s best interest, investment advisors must act in accordance with specific duties to ensure a proper principal/agency relationship under this new standard.

 A Duty of Care

• As the basis for investment and financial advice, a duty of care requires that agents work with prudence and reasonableness, avoiding misleading statements to provide for the best execution of trades.

 A Duty of Loyalty

• A duty of loyalty calls on retirement advisors to work in the best interests of clients and put client interests before their own. This may mean giving clients the first shot at a new product or the best price for a plan. As part of loyalty, agents must obtain a client’s informed consent with full and transparent disclosure.

A Duty of Obedience

• Agents must follow instructions provided by clients and agree to terms of engagement. In other words, they must follow a duty of obedience when serving customers' requests.

A Duty of Good Faith

• Transparency in information provided to clients and fairness in fees, terms and other contract obligations are essential to ensure a fiduciary level of care.

Moving Forward

While these duties are conceptual in nature, they will provide guidelines to advisors as they move forward to address the stricter standards of fiduciary care most likely a reality in the near future.    

To learn more about the DOL rule changes, who is affected and how retirement advisors must act under the new rule, please watch the webcast, The DOL Conflict of Interest Rule: What does it mean for you?