Rule Change Updates

The controversial Fiduciary Rule is for real.  Even though many in the industry assumed further delay and the Trump administration advocated its repeal, parts of the rule take effect on June 9th.  The full compliance date remains January 1, 2018, but there is still much speculation over what “full compliance” will then mean.

During the period between Phase 1 compliance and January 1, 2018, the Department of Labor will continue to collect information, and it is almost certain that the final version of the law will look different from the current iteration.

Fiduciary Rule Basics

The fiduciary rule changes the current suitability standard to a “best interest” standard when providing advice for virtually any retirement plan.  Under this standard, investor’s interests must come first; advisers can no longer justify higher commissions from selling more expensive products when giving advice in these situations. Many advisers who previously sold on commission  must transition to fee-based planning to stay in business. Commission-based products for this space have needed major revamping, and product providers have spent huge sums preparing compliance systems and revising processes to comply.

With all of the costs, critics of the rule are concerned that investors with small to medium retirement accounts won’t get the advice they need, as firms will not be able to afford maintaining undersized accounts.

5 Important Things to Know about DOL Phase 1

  1. The Fiduciary Rule applies only to advice about retirement plans. Included are IRAs and ERISA plans, but the rule does not apply to after-tax investment accounts that may be earmarked as retirement savings.
  2. Financial institutions and advisors to retirement plans and participants are subject to a “best interest” standard starting June 9th. This standard includes a duty of prudence and loyalty – the customer’s interest must come first.
  3. During the transition period, firms can recommend proprietary products with commissions.
  4. The DOL expects firms to work toward full transition with continued focus on implementing policies and procedures necessary to ensure compliance.
  5. DOL will prioritize compliance over enforcement during the transition period as long as firms are making good faith efforts toward compliance.

BICE Compliance in 2018

The Best Interest Contract Exemption (BICE) is one of the most complicated provisions of the rule, and its implementation has been postponed until January, 2018. A controversial aspects permits investors with such a contract in place to sue their advisers in court if they believe their interests haven’t come first.

Effect on Licensing Exams

Provisions of the new DOL rule may impact all FINRA exams administered after June 9th.  Thanks for checking for Rule Updates from Knopman Marks Financial Training!

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Written by Marcia Larson
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.