What The Latest Milestone Actually Means

What The Latest Milestone Actually Means

Today, marks the applicability date of the Impartial Conduct Standards under the Department of Labor’s fiduciary rule, a process that was almost 6 years in the making (although technically the rule doesn’t take effect until 11:59PM tonight!). Notably, though, the primary part of the fiduciary rule that is taking effect is just the Impartial Conduct Standards that financial advisors must act as fiduciaries (at least regarding retirement accounts); the additional fiduciary agreements, policies and procedures requirements, and (website) disclosure rules, won’t kick in until January 1st of 2018.

However, financial institutions have already begun to send out information to clients about various changes that may be occurring under the fiduciary rule, as many firms have already been implementing changes just to ensure they comply with the Impartial Conduct Standards (and some have been making announcements today). In the meantime, though, the fiduciary rule is still not a done deal, even though the Impartial Conduct Standards are applicable today, as House Republicans just included a proposal to repeal of the DoL fiduciary rule in the new Financial Choice Act (though it doesn’t appear to stand much chance of passing the Senate as-is), a similar piece of legislation was just proposed in the Senate (though it too is still subject to a Democratic filibuster), and OMB just posted a notice that the Labor Department will soon be soliciting public comments about potential modifications to the rule.

Still, the odds of a full repeal seem low, though there is much discussion about whether the rule might at least be changed, particularly with respect to the controversial class action lawsuit provision (which some claim will raises costs, and others suggest are an essential point of accountability to ensure financial institutions take the rules seriously), though some have also warned that the disclosure requirements may still be problematic for some advisory firms (e.g., RIAs that do not qualify for the level-fee fiduciary streamlined exemption).

Nonetheless, the fact remains that the fiduciary rule is now official and on the books, and even though the Department of Labor itself has indicated it will not be aggressively enforcing through the end of the year as long as firms try to comply in good faith, the rule is already driving substantial positive changes in the industry, from simplification in mutual fund share classes with the rise of “T shares and clean shares” to new product filings that should expand the accessibility of various no-load insurance and annuity products to fee-based financial advisors. And all financial advisors should be certain that going forward, they have clear documentation in their client files, for every IRA rollover, that analyzes the costs and performance of the old plan against what the advisor proposed, to substantiate that the rollover really was the appropriate recommendation for the retirement investor!


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