In 2016, the Department of Labor passed new rules that will hold brokers who advise on retirement plans to the same fiduciary standard as investment advisors and fee-only financial planners. Brokers will be limited to "reasonable" compensation and will no longer be permitted to factor in this compensation when recommending plans to their clients.
In the wake of the financial crisis, the Treasury Department publishes a report recommending "establishing a fiduciary duty for broker-dealers offering investment advice and harmonizing the regulation of investment advisers and broker-dealers."
President Obama signs the the Dodd-Frank Wall Street Reform and Consumer Protection Act, giving the Securities and Exchange Commission the power to enact a fiduciary standard that applies consistently to retail investment advisors. Later that year, the Department of Labor passes a rule designed to limit conflicts of interest for financial advisors managing retirement accounts for clients.
In light of serious criticism from the financial services industry, the Department of Labor withdraws the conflicts of interest rule passed in 2010.
The Department of Labor once again proposes a rule that requires brokers to be held to a fiduciary standard, with the intention of limiting conflicts of interest from affecting retirement plan advice. Legislation introduced by Republicans attempts to block this rule.
The Department of Labor passes the long-expected, now revised fiduciary rule and allows for a gradual phase-in.
The "fiduciary rule" is fully phased-in on April 10, 2017.
New rules and limitations
Summary of Non-Fiduciary Activities
Activities that have not traditionally been thought of as fiduciary are still considered non-fiduciary under the new set of rules. In practice, this mostly covers communications with clients. According to the Department of Labor, "if the communications do not meet the definition of a 'recommendation,' the communications will be considered non-fiduciary."
These non-fiduciary communications and other types of activities include:
Prohibited Transaction Exemptions
The Department of Labor issued and amended two prohibited transaction exemptions to prevent fiduciaries from violating ERISA rules, as summarized below.
Best Interest Contract Exemption
This exemption lets firms determine their own compensation systems, which may include commission-based and revenue sharing systems, if they pledge to prioritize each client's best interest and disclose any conflicts of interest. To qualify, the firm and adviser providing retirement advice need to enter a contract with each client that includes the following:
Principal Transaction Exemption
The Principal Transaction Exemption permits firms to receive a mark-up, mark-down, or similar type of payment when buying or selling some types of assets in "principal transactions" (occurring when the firm buys or sells principal traded assets for its own account) and "riskless principal transactions" (occurring when a firm reacts to an order from a retirement investor to buy or sell a principal traded asset by buying or selling the asset for its own account to offset the transaction with the retirement investor).
This exemption does not apply if any of the following are true:
Ultimately, this new fiduciary rule is an extension of the increasing amounts of responsibility placed on all players in the financial advice and asset management field. As Dr. Gregory Kasten of Unified Trust Company quipped when the Department of Labor's then-proposed fiduciary rule was being discussed in 2015, it seems "everyone is a fiduciary" now. Given the increasing importance of retirement plans for an aging population, this change may be for the better.
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