Everything You Need to Know About the DOL Fiduciary Rule

The Department of Labor (DOL) fiduciary rule, was originally scheduled to be phased in from April 10, 2017, to Jan. 1, 2018. As of June 21, 2018, The U.S. Fifth Circuit Court of Appeals officially vacated the rule, effectively killing it.

However, according to language from former Department of Labor Secretary, Alexander Acosta, stated in early May of 2019, that the DOL was working with the SEC to resurrect the fiduciary rule.

Breaking Down the Fiduciary Rule

The DOL’s definition of fiduciary demands that retirement advisors act in the best interests of their clients and put their clients' interests above their own. It leaves no room for advisors to conceal any potential conflict of interest and states that all fees and commissions for retirement plans and retirement planning advice must be clearly disclosed in dollar form to clients.

The definition has been expanded to include any professional making a recommendation or solicitation in this area, not simply giving ongoing advice. Previously, only advisors who were charging a fee for service (either hourly or as a percentage of account holdings) on retirement plans were likely to be fiduciaries. (And even then, to find out for sure you needed to ask.)

Key Takeaways

  • The Fiduciary Ruling was one of the most hotly debated topics in finance, with many brokers and investment firms doing all they could to halt it from being enacted.
  • The Fiduciary Ruling was brought into effect to protect the interests of clients versus the financial interests of their brokers and advisors. This led to lower commissions for brokers, less income from "churning" portfolios, and increased compliance costs.
  • The DOL Fiduciary Rulings were vacated in 2018, but statements made by the DOL Secretary in May of 2019 stated the DOL was working with the SEC to reenact the controversial ruling.
  • The individual investors most affected were those with fully managed IRAs and 401(k) accounts. These investors would have benefited the most from the Fiduciary Ruling.

History of the Fiduciary Rule

The financial industry was put on notice in 2015 that the landscape was going to change. A major overhaul was proposed by President Obama on Feb. 23, 2015: "Today, I'm calling on the Department of Labor to update the rules and requirements that retirement advisors put the best interests of their clients above their own financial interests. It's a very simple principle: You want to give financial advice, you've got to put your client's interests first."

The DOL proposed its new regulations on April 14, 2015. This time around, the Office of Management and Budget (OMB) approved the rule in record time, while President Obama endorsed and fast-tracked its implementation; the final rulings were issued on April 8, 2016.

Before finalizing the ruling, the DOL held four days of public hearings. While the final version was being hammered out, the legislation was known as the fiduciary standard. In January 2017 during the first session of Congress of the year, a bill was introduced by Rep. Joe Wilson (R, S.C.) to delay the actual start of the fiduciary rule for two years.

The fiduciary rule expanded the “investment advice fiduciary” definition under the Employee Retirement Income Security Act of 1974 (ERISA). Running 1,023 pages in length, it automatically elevated all financial professionals who work with retirement plans or provide retirement planning advice to the level of a fiduciary, bound legally and ethically to meet the standards of that status.

While the new rules were likely to have had at least some impact on all financial advisors, it was expected that those who work on commission, such as brokers and insurance agents, would be impacted the most.

In late March 2017, the world's two largest asset managers, Vanguard and BlackRock, called for a more significant delay considering the confusion these repeated moves to delay the rule had caused. After a 15-day public comment period, the DOL sent its rule regarding the delay to the Office of Management and Budget for review.


The number of letters the DOL received that opposed a delay to enact the new Fiduciary rulings.

After the review by the OMB, the DOL publicly released an official 60-day delay to the fiduciary rule's applicability date. The 63-page announcement noted that "...it would be inappropriate to broadly delay the application of the fiduciary definition and Impartial Conduct Standards for an extended period in disregard of its previous findings of ongoing injury to retirement investors." Responses to the delay ranged from supportive to accusatory, with some groups calling the delay "politically motivated."

On March 1, 2017, the DOL announced a proposed extension of the applicability dates of the fiduciary rule and related exemptions, including the Best Interest Contract Exemption, from April 10 to June 9, 2017. Then, in late May 2017, then-newly appointed DOL Secretary Alexander Acosta, writing in an opinion piece for The Wall Street Journal, confirmed that the fiduciary rule would not be delayed beyond June 9 as the DOL sought "additional public input."

Then, in early August 2017, the DOL filed a court document as part of a lawsuit in the U.S. District Court for the District of Minnesota, proposing an 18-month delay to the rule's compliance deadline. This would have changed the final deadline for compliance from Jan. 1, 2018, to July 1, 2019. The same document suggested the delay might include changes to the types of transactions that are not allowed under the fiduciary rule. The proposed delay was approved by the Office of Management and Budget in August 2017.

Originally, the DOL regulated the quality of financial advice surrounding retirement under ERISA. Enacted in 1974, ERISA had never been revised to reflect changes in retirement savings trends, particularly the shift from defined benefit plans to defined contribution plans, and the huge growth in IRAs.

The Fiduciary Rule Under President Trump

The regulation was initially created under the Obama administration, but in February 2017, former President Trump issued a memorandum that attempted to delay the rule's implementation by 180 days. This action included instructions for the DOL to carry out an “economic and legal analysis” of the rule's potential impact.

Then, on March 10, 2017, the DOL issued its own memorandum, Field Assistance Bulletin No. 2017-01, clarifying the possible implementation of a 60-day delay to the fiduciary rule. Full implementation of all elements of the rule was pushed back to July 1, 2019.

Before that could happen—on March 15, 2018—The Fifth Circuit Court of Appeals, based in New Orleans, vacated the fiduciary rule in a 2-to-1 decision, saying it constituted "unreasonableness," and that the DOL's implementation of the rule constitutes "an arbitrary and capricious exercise of administrative power." The case had been brought by the U.S. Chamber of Commerce, the Financial Services Institute, and other parties. Its next stop could be the Supreme Court.

On June 21, 2018, The Fifth Circuit Court of Appeals confirmed its decision to vacate the ruling.

Fiduciary vs. Suitability

Fiduciary is a much higher level of accountability than the suitability standard previously required of financial salespersons, such as brokers, planners, and insurance agents, who work with retirement plans and accounts. "Suitability" means that as long as an investment recommendation meets a client's defined need and objective, it is deemed appropriate.

Under a fiduciary standard, financial professionals are legally obligated to put their client’s best interests first, rather than simply finding “suitable” investments. The new rule would have therefore eliminated many commission structures that govern the industry.

Advisors who wished to continue working on commission would have needed to provide clients with a disclosure agreement, called a Best Interest Contract Exemption (BICE), in circumstances where a conflict of interest could exist (such as the advisor receiving a higher commission or special bonus for selling a certain product). This was to guarantee that the advisor was working unconditionally in the best interest of the client. All compensation that was paid to the fiduciary was required to be clearly spelled out as well.

Covered Retirement Plans Included:

What Wasn't Covered

  • If a customer calls a financial advisor and requests a specific product or investment, that does not constitute financial advice.
  • When financial advisors provide education to clients, such as general investment advice based on a person's age or income, it does not constitute financial advice.
  • Taxable transactional accounts or accounts funded with after-tax dollars are not considered retirement plans, even if the funds are personally earmarked for retirement savings.

Reaction to the Fiduciary Rule

There’s little doubt that the 40-year-old ERISA rules were overdue for a change, and many industry groups had already jumped on board with the new plan, including the CFP Board, the Financial Planning Association (FPA), and the National Association of Personal Financial Advisors (NAPFA).

Supporters applauded the new rule, saying it should increase and streamline transparency for investors, make conversations easier for advisors entertaining changes and, most of all, prevent abuses on the part of financial advisors, such as excessive commissions and investment churning for reasons of compensation. A 2015 report by the White House Council of Economic Advisers found that biased advice drained $17 billion a year from retirement accounts.

However, the regulation met with staunch opposition from other professionals, including brokers and planners. The stricter fiduciary standards could have cost the financial services industry an estimated $2.4 billion and $5.7 billion over 10 years by eliminating conflicts of interest like front-end load commissions and mutual fund 12b-1 fees paid to wealth management and advisory firms.

The June 2016 Chamber of Commerce Lawsuit

Three lawsuits have been filed against the rule. The one that drew the most attention was filed in June 2016 by the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association, and the Financial Services Roundtable in the U.S. District Court for the Northern District of Texas.

The basis of the suit is that the Obama administration did not have the authorization to take the action it did in endorsing and fast-tracking the legislation. Some lawmakers also believe the DOL itself was reaching beyond its jurisdiction by targeting IRAs. Precedent dictates Congress alone has approval power regarding a consumer’s right to sue. This is the suit that resulted in the March 15, 2018, ruling against the fiduciary rule discussed above.

After the DOL officially announced the 60-day delay to the rule's applicability, a "Retirement Ripoff Counter" was unveiled by Sen. Elizabeth Warren and AFL-CIO President Richard Trumka. Partnering with Americans for Financial Reform and the Consumer Federation of America, this counter attempts to highlight the "... cost to Americans of saving for retirement without the fiduciary rule, starting from Feb. 03, 2017." The press release from Americans for Financial Reform states, "Every day that conflicted advice continues costs them [Americans] $46 million a day, $1.9 million per hour, and $532 a second."

Who Did the Fiduciary Rule Affect?

The new DOL rules were expected to increase compliance costs, especially in the broker-dealer world. Fee-only advisors and Registered Investment Advisors (RIA) were expected to see increases in their compliance costs as well.

The fiduciary rule would have been tough on smaller, independent broker-dealers and RIA firms. They might not have had the financial resources to invest in the technology and the compliance expertise to meet all of the requirements. Thus, it's possible that some of these smaller firms would have had to disband or be acquired. And not just small firms: The brokerage operations of MetLife Inc. and American International Group were sold off in anticipation of these rules and the related costs.

Advisors and registered reps who dabble in terms of advising 401(k) plans might have been forced out of that business by their broker-dealers due to the new compliance aspects.

Ameriprise CEO James Cracchiolo said, “The regulatory environment will likely lead to consolidation within the industry, which we already see. Independent advisers or independent broker-dealers may lack the resources or the scale to navigate the changes required, and seek a strong partner.”

Annuity vendors also would have had to disclose their commissions to clients, which could have significantly reduced sales of these products in many cases. These vehicles have been the source of major controversy among industry experts and regulators for decades, as they usually pay very high commissions to the agents selling them and come with an array of charges and fees that can significantly reduce the returns that clients earn.

Article Sources
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  1. U.S. Department of Labor. "US Labor Department Extends Fiduciary Rule Applicability Date."

  2. Loan Syndications and Trading Association. "Mandate Department of Labor's Fiduciary Rule."

  3. House of Representatives Education and Labor Committee. "Examining the Policies and Priorities of the U.S. Department of Labor."

  4. EveryCRSReport. "Department of Labor’s 2016 Fiduciary Rule: Background and Issues."

  5. The White House: President Barack Obama. "Remarks by the President at the AARP."

  6. U.S. Department of Labor. "U.S. Labor Department Seeks Public Comment on Proposal to Protect Consumers From Conflicts of Interest in Retirement Advice."

  7. U.S. Congress. "H.R.355 - Protecting American Families' Retirement Advice Act."

  8. Barron's. "BlackRock, Vanguard: Delay DOL Rule."

  9. National Archives, Federal Register. "Definition of the Term “Fiduciary”; Conflict of Interest Rule-Retirement Investment Advice; Best Interest Contract Exemption (Prohibited Transaction Exemption 2016-01); Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (Prohibited Transaction Exemption 2016-02); Prohibited Transaction Exemptions 75-1, 77-4, 80-83, 83-1, 84-24 and 86-128."


  11. The Wall Street Journal. "Deregulators Must Follow the Law, So Regulators Will Too."

  12. National Archives, Federal Register. "18-Month Extension of Transition Period and Delay of Applicability Dates; Best Interest Contract Exemption (PTE 2016-01); Class Exemption for Principal Transactions in Certain Assets Between Investment Advice Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02); Prohibited Transaction Exemption 84-24 for Certain Transactions Involving Insurance Agents and Brokers, Pension Consultants, Insurance Companies, and Investment Company Principal Underwriters (PTE 84-24)."

  13. U.S. Government Publishing Office: govinfo.gov. "Federal Register Volume 82, Number 168 (Thursday, August 31, 2017): Proposed Rules."

  14. Investment News. "DOL fiduciary rule delayed 180 days by Trump directive."

  15. U.S. Department of Labor. "Field Assistance Bulletin No. 2017-02."

  16. U.S. Department of Labor. "Field Assistance Bulletin No. 2018-02."

  17. United States Court of Appeals for the Fifth Circuit. "No. 17-10238," Pages 45 - 46.

  18. Skadden. "Fifth Circuit Mandate Officially Ends DOL Fiduciary Rule."

  19. U.S. Department of Labor. "Financial Planning Coalition, RE: Proposed Conflict of Interest Rule and Related Proposals, RIN-1210-AB32."

  20. The White House: President Barack Obama. "Fact Sheet: Middle Class Economics: Strengthening Retirement Security by Cracking Down on Backdoor Payments and Hidden Fees."

  21. U.S. Department of Labor. "Fiduciary Investment Advice Regulatory Impact Analysis," Page 8.

  22. Chamber of Commerce. "Lawsuit Filed to Challenge New Department of Labor Rule That Prevents Financial Professionals from Best Serving Retirement Savers."

  23. Americans for Financial Reform (AFR). "AFR Event: Retirement Ripoff Counter Shows Losses of $532 Each Second Without Fully Enforced Fiduciary Rule."

  24. Investment News. "Ameriprise may add advisers as DOL fiduciary rule squeezes rivals."

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