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The DOL Conflict of Interest Rule (“Fiduciary Rule”)

The DOL Conflict of Interest Rule (“Fiduciary Rule”) was released April 6, 2016 after nearly six years of effort. The final rule reflected a number of changes to lessen the burden of implementation on industry participants, yet achieves the DOL’s “North Star” of raising the standards of care for retirement investors and eliminating conflicted advice.

Of greatest significance in this rule is the change from the suitability standard to a fiduciary standard when advising retirement clients.  This more stringent standard requires financial advisors to act in the best interest of their clients when recommending products and strategies for IRAs and retirement plan rollover transactions.  Any financial incentives for advisors to act contrary to the client’s best interest are prohibited.

The new rule permits the payment of commission and revenue-sharing compensation — which could be viewed as a conflict of interest under a fiduciary standard — provided the advisor delivers sufficient disclosures and puts the interest of the client ahead of personal financial interests. It clearly states that “lowest price” – either fee or commission — doesn’t ensure compliance with the fiduciary standard.  Also permitted in the final rule are the sale of proprietary products when in the customer’s best interest.

The preliminary version of the rule established highly restrictive contract, disclosure and performance reporting provisions.  Many of these provisions were relaxed or eliminated in the final rule, but substantial BD/RIA compliance requirements remain, including:

  • Establishing new procedures and supervisory standards for the firm;
  • Training firm personnel on the impacts of the new rule;
  • Licensing registered reps who move to a fee-based business model from commission compensation;
  • Monitoring employees who have never been fiduciaries, and
  • Drafting new client paperwork disclosures and contracts.

The DOL’s broader definition of fiduciary will take effect in April of 2017, but full compliance with all aspects will be phased-in for full implementation on January 1, 2018.

Knopman Marks Financial Training will continue to monitor new developments to this rule to ensure that all materials and classes are updated when appropriate.

Marcia Larson is Vice President, Faculty, at Knopman Marks Financial Training, New York, NY. She has extensive experience in financial licensing and regulatory training, having authored, developed and presented courseware for numerous securities and insurance exam preparation and continuing education and compliance programs. Before joining Knopman Marks, Marcia was Director of Annuity Products and Business Development at CUNA Mutual Group, where she developed and marketed industry-leading annuity products and retirement solutions and implemented distribution relationships. She was previously VP, Securities Products for Kaplan Financial, managing securities training products and subsequently, international training and businesses development. Marcia has trained thousands of financial industry exam candidates throughout their careers, and also college students as an adjunct professor. Marcia was a summa cum laude graduate of Wartburg College with degrees in Business Administration and Piano Performance. Marcia also holds the designations of Chartered Financial Consultant® (ChFC®), Chartered Life Underwriter (CLU®), Certified Employee Benefit Specialist (CEBS), and Fellow Life Management Institute™ (FLMI®). She currently teaches the SIE, Series 6, 7, 24, 50, 52, 63, 65, and 66 exams.