The DOL Fiduciary Rule:
How Will It Impact Investment Advisors?
The new Department of Labor (“DOL”) Rule changes the definition of “fiduciary” under the Employee
Retirement Income Security Act (“ERISA”), expanding the universe of financial professionals who would be
deemed to be fiduciaries.
Most of the Rule’s requirements become effective April 10, 2017. The full disclosure provisions, the policies
and procedures requirements, and the contract requirement do not go into full effect until January 1, 2018.
THE RULE
Under the DOL's Rule, any individual receiving compensation for providing advice for an individual or
specifically directed to a particular plan sponsor (e.g., an employer with a retirement plan), plan participant,
or IRA owner for consideration in making a retirement investment decision is a fiduciary. The types of
retirement investment advice that would be covered by the fiduciary standard include, but are not limited
to, (i) advice concerning which assets to purchase or sell, and (ii) advice regarding whether to roll over
assets from an employer-based plan to an IRA.
To ensure the customer is adequately protected, being a fiduciary would mean any financial adviser,
including an entity who, among other things, is a representative of an RIA, a bank or similar financial
institution, an insurance company, or a broker-dealer, must provide impartial advice in the client's best
interest, and generally excluding commissions and revenue sharing. These types of traditional charges may
be used under the Best Interests Contract Exemption (BICE). The BICE essentially allows for conflicted forms
of compensation (i.e., commissions and revenue sharing) as long as the compensation is “reasonable,”
adequately disclosed, acknowledges the Financial Institution and its Adviser(s) are fiduciaries under ERISA,
and does not lead to biased recommendations in any way.
The DOL's proposal carefully excludes education from the definition of retirement investment advice so that
advisers and plan sponsors can continue to provide general education on retirement saving across
employment-based plans and IRAs without triggering fiduciary duties. This exclusion is similar to previously
issued guidance to minimize the compliance burden on firms, but clarifies that references to specific
investments would constitute advice subject to a fiduciary duty.
IMPACT ON INVESTMENT ADVISERS
The DOL's fiduciary standard is not the same as the standard enforced by the Securities and Exchange
Commission (the “SEC”). Since RIAs currently follow the SEC standard, the DOL's proposal would force
them to comply with two separate fiduciary regimes.
Broadly speaking, the SEC standard requires advisers to disclose conflicts of interest up front to clients
through Form ADV, and to minimize the impact of conflicts and manage them properly. Within this context,
it is up to individual clients and advisers to decide whether they can work together given any existing
conflicts.
4128 Innslake Drive • Glen Allen, VA 23060 • 804.965.5400 • oysterllc.com
The DOL Fiduciary Rule:
How Will It Impact Investment Advisors?
The DOL standard is much more restrictive, in large part prohibiting advisers from engaging in transactions
that, in the Department's view, present a conflict of interest. These conflicts cannot be cured merely
through disclosure. Under the current proposal, some of these transactions would be permissible through
a best interest contract exemption – or BICE – that would require clients to enter into a highly complex
contractual agreement with the adviser.
While RIAs who do significant business in the 401(k) market have experience in complying with ERISA and
DOL requirements, the vast majority of RIAs – who may advise only on IRAs for individuals – could find
themselves scrambling to comply with new reporting and regulatory requirements.
To learn how Oyster Consulting can help your firm navigate these new regulations, call us at (804) 965-5400
and one of our associates will be happy to assist you.
4128 Innslake Drive • Glen Allen, VA 23060 • 804.965.5400 • oysterllc.com