DOL Fiduciary Rule: Industry Watchers Predict Increase in Analysis and Documentation

DOL's fiduciary rule changes impact on advisors' businesses; compliance deadline in September. Industry execs downplay effects, but changes are significant.

The Department of Labor's fiduciary rule, also known as the Retirement Security Rule, has caused a stir in the financial industry as firms scramble to comply before the September deadline. The rule extends the definition of investment advice under Erisa, impacting financial services professionals who advise retirement plan participants, IRA owners, and plan officials.

Industry executives like Paul Reilly and Ron Kruszewski have downplayed the rule's impact, but the reality is more complex. The extent of change advisors can expect depends on their firm's compliance with the DOL's prohibited transaction exemption 2020-02. This exemption allows fiduciaries to receive compensation for advice on rollovers and plan assets.

Advisors can anticipate more stringent analysis and documentation requirements under the new rule, as the Erisa standard of prudence sets a high duty of care. What may have been acceptable under the SEC or Finra may not meet the DOL's standards. Advisors serving 401(k) plans may need to use firm-approved software and work with specialists to provide fiduciary services.

Independent insurance agents selling multiple products will face significant changes due to revisions in prohibited transaction exemptions. Communication with clients also poses risks, as recommendations must be distinguished from marketing to comply with complex exemptions. Firms can look to the SEC's Regulation Best Interest for guidance on defining recommendations and should consider vetting sales and marketing communications to ensure compliance.

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