The Department of Labor’s new fiduciary rule that automatically elevates all financial professionals who work with retirement plans or accounts to a fiduciary status is bringing sweeping changes to the retirement planning industry. Many advisors and firms are still struggling to understand the full scope of the new rules so that they can comply with this regulation when it becomes final next year.
Even after firms make their final determinations of how the rules apply, they will still have to train and educate their employees on the new procedures that must be used in order to stay compliant. Now some third-party educators are springing up in the wake of the DoL rule to help advisory firms with this task.
Here's what advisors should be thinking about as the rule becomes final. (For related reading, see: The SEC Fiduciary Rule: How to Explain It to Clients.)
Getting Ready to Comply
Several major institutions in the financial industry have plans to offer training for compliance with the DoL rule, and some already have programs available. The American College for Financial Planning and fiduciary consulting firm fi360 both currently offer programs in this area, and several more players are about to enter the field. Morningstar, the Pension Resource Institute and the American Retirement Association will be rolling out training programs in the coming months, and they will be joined by the Wagner Law Group and FRA PlanTools. LIMRA has also announced plans to offer a training program of its own this fall.
The necessary preparations for compliance with the new rules will start with firms examining the specific approach that they are taking with their clients, the technology that they use as well as their documentation processes. Then firms can analyze how they intend to train their advisors and employees on how to act as fiduciaries, as this status will be bestowed on any advisor who provides investment advice for a fee for any type of retirement savings account.
The new fiduciary rules are going to elevate the status of thousands of advisors to fiduciaries who formerly were only held to a suitability standard with their clients. And even those who are currently held to a fiduciary standard under SEC regulations will have some adjustments to make under the new rules. Douglas Wilburn, chief compliance officer at ValMark Securities Inc., an independent broker-dealer, told InvestmentNews that “a lot of advisors didn't have to worry about being an ERISA fiduciary. They may have been a fiduciary under the '40 Act, but that's a different set of responsibilities. I think it makes sense for firms to train people on what it means to be an ERISA fiduciary and the obligations that come along with that. That's new for a lot of people.”
Many of the programs that are forthcoming will go beyond the tenants of the rule itself and talk about the various exemptions from the rule, such as the BICE requirements. They will also cover the new rules for IRA rollovers, which many would say is the factor that is most critically affected by the new rule. Regarding the BICE requirements, the new rule states that “financial Institutions generally must adopt policies and procedures reasonably designed to mitigate any harmful impact of conflicts of interest.” (For related reading, see: Fiduciary Rule Imapct: How It's Already Being Felt.)
The Bottom Line
Financial advisory firms must take a proactive approach to getting their personnel adequately trained to comply with the new fiduciary rules. Larger firms with greater resources may provide internal training, while smaller firms can outsource this task to one of the companies mentioned above. But the deadline for compliance in this matter is fast approaching, and firms need to act now in order to meet the new requirements. (For related reading, see: How the Fiduciary Rule Creates IRA Rollover Conflicts.)