Final Ruling: What Does the New Fiduciary Rule Mean for You?


You may have heard about announcement of new Department of Labor (DOL) fiduciary rules today. In reviewing the final regulation’s highlights – I think the DOL has worked very closely with many industry practitioners in an effort to construct a workable rule that best serves working Americans while also recognizing the importance of advisors and service providers in creating successful retirement plans.

Namely, I commend the work that NAPA (National Association of Plan Advisors) has done in providing guidance and opinion to the DOL and White House and think some specifics of the final regulations, such as the exemption of education and an implementation date of January 1, 2018, will allow for this sweeping regulation to be effectively implemented by the industry, and ultimately, believe this will lead to a stronger private retirement system.

Below, I expand on the details of this ruling and what this means for investors. I hope the information below gives you some perspective and confidence on the new rules: 

Why has the DOL updated its fiduciary rules?

The DOL has jurisdiction over many programs designed to enhance and protect the welfare of retirement investors. Up until now, the agency had focused mainly on the fiduciary responsibilities of pension fund managers. Today, however, more and more Americans rely on 401(k)s, 403(b)s, IRAs, and other workplace retirement plans to fund retirement and are turning to financial advisors to help them with investment decisions. To address this new reality, the DOL regulations have been updated to extend the fiduciary role to better reflect the composition of our country’s private retirement system.

What are the primary changes?

  • Expands the types of retirement plans subject to the fiduciary rules. Most significantly, IRAs are now included in the scope of the DOL’s fiduciary rules. This directly affects participants receiving advice about IRA rollovers from your plan.
  • Refines the definition of who is a fiduciary. Under the new rules, a fiduciary is any individual who receives compensation for providing advice that is individualized or specifically directed to a particular plan sponsor (e.g., an employer with a retirement plan), plan participant, or IRA owner and intended to help him or her make a retirement investment decision.
  • Modifies fiduciary exemptions that advisors can use to receive compensation for retirement plan services. Being a fiduciary means that an advisor must provide impartial advice in the client’s best interest and cannot accept any payments that create a conflict of interest, unless the advisor qualifies for an exemption. One of these exemptions, known the Best Interest Contract (BIC) exemption, allows firms to continue to set their own compensation practices provided they, among other things, commit to putting their clients’ best interest first and disclose any conflicts that may prevent them from doing so.

Many financial advisors, our firm included, have already made the commitment to upholding a fiduciary standard. We serve in a fiduciary capacity for all of our clients, bound to act in the best interest of the plan and its participants (employees). We take care to acknowledge our fiduciary responsibilities in writing and clearly define our services to both clients and their employees. All advisors will need to do this moving forward.

When will the new fiduciary rule be effective?

The new rule is scheduled to go into effect on January 1, 2018.

Next steps

Once we have fully evaluated the new rules, we will be sharing additional information. For now, you can check out the full details of the DOL rule by reviewing the  official release of the fact sheet.