The Department of Labor (DOL) finally proposed a highly anticipated rule that would require any advisor working with retirement plans to act in the best interest of clients.
Under the rule change, all retirement advisors – brokers, registered representatives, investment advisors, insurance agents, and any others who get paid to provide investment advice – would have to adhere to a fiduciary standard. In addition, they would not be able to accept any payments that would create a conflict of interest, though the rule will allow these advisors to get paid in a variety of ways, including commissions, revenue sharing, and 12b-1 fees. This must be done, however, under a new “best interest contract exemption.”
DOL Secretary Thomas Perez said on a conference call on Tuesday, “The rule is intended to provide guardrails, but not straightjackets.” The rule will allow advisors flexibility in how they get paid as long as they put their clients’ best interest first. Other important points the DOL made in its fact sheet were:
- General education can continue to be provided without running afoul of the fiduciary rule as long as there are no references to specific investments.
- Firms must identify and mitigate conflicts of interest and compensation structures that would encourage advisors to go against the best interest rule.
- Firms must clearly and prominently disclose any conflicts of interest.
The process has just started and now there will be a 75-day period for comment, followed by a public hearing, a public transcript of the hearing, another opportunity for comment, and finally a review before the “final rule” is announced. It is anyone’s guess how long this process will end up taking, but based on the fact that the Office of Management and Budget fast-tracked the proposal following President Obama’s public support of the DOL’s efforts in February, it could be much sooner than expected. Axia Advisory has always acknowledged its fiduciary status to our clients and believes the proposed rule is a benefit to all investors, both retail and institutional.