<img height="1" width="1" style="display:none;" alt="" src="https://dc.ads.linkedin.com/collect/?pid=289257&amp;fmt=gif">
Sign Up
Log In
Menu
Sign Up
Log In

PeerBenchmarks-mockup2

Free Peer Benchmark Analyzer

3 Steps to Prepare for the DOL Fiduciary Rule

Jeremi Karnell
Dec 23, 2016

April is always a busy month in the financial planning industry, with last-minute tax preparations and questions from clients frantically filling out their returns. Even so, April of 2017 promises to be especially hectic, thanks to the U.S. Department of Labor and its newly minted fiduciary rule. 

The DOL fiduciary rule, slated to take effect on April 10, 2017, will impose sweeping changes on the financial planning industry and require financial advisors and other professionals to put the best interests of their clients first when working with IRA accounts and other retirement funds.

The goal of the Department of Labor fiduciary rule is to enhance protections for participants in retirement plans by holding advisors to a fiduciary standard of conduct. These protections are needed to protect clients from unscrupulous and unqualified financial professionals, and in the end, the regulation should benefit honest financial advisors. 

The net result of the DOL fiduciary rule may be positive for many in the financial planning and wealth management industry, but that does not mean the transition will be easy. Every new regulation, including the upcoming fiduciary rule from the Department of Labor, comes with its set of complications, and it is important to take preparatory steps now, so you will be ready when April 10, 2017, rolls around. Here are three essential steps every financial professional should take.

Step 1 - Verify Compliance Among Your Service Providers

Even if you do everything right and comply fully with the law, you could get into trouble if the service providers you use are less cautious. Now is the time to ask the right questions and gather information about the compliance of the service providers your firm uses.

Asking how those service providers plan to comply with the new DOL fiduciary rule can protect you and your firm and give you one less thing to worry about. It may take time to contact all your service providers and gather the information you need, so the sooner you begin, the better.

Step 2 - Review Your Current Procedures for Compliance

Even if you already put the best interests of your clients first, it would be wrong to assume that you are in full compliance with the Department of Labor and its new fiduciary rule. Regardless of how you operate or how long you have been in business, you need to review your policies, products, and procedures to ensure compliance with the new fiduciary rule. 

That means reading through the text of the upcoming regulation, consulting with your attorney and asking the right questions before the fiduciary rule goes into effect. The new Department of Labor regulations are very strict, and the penalties for violating them are just as stiff. The time you spend learning about the new law and reviewing your level of compliance will be time well spent.

Step 3 - Understand the Difference Between Advice and Education

You may think you already understand the distinction between advice and education, but it is important to verify your understanding before the new Department of Labor fiduciary rule goes into effect in April. The distinction between client education and investment advice is key to the provisions of the fiduciary rule, and confusing the two could be very costly to you and your firm.

In crafting the new fiduciary rule, the Department of Labor worked hard to make sure financial planning and wealth management firms would still be able to provide a basic level of education to their clients without that instruction rising to the level of advice. Since investment advice is covered by the fiduciary rule but basic education is not, this distinction can be a critical one for financial advisors and the owners of financial planning and wealth management firms.

It is important for the owners of financial planning and wealth management firms to understand the distinction between basic financial education and investment advice, but it is just as important for their employees to understand its importance. Whether you have one employee working on your behalf or hundreds, now is the time to implement a comprehensive training program to ensure compliance with the new DOL fiduciary rule.

Ongoing training will also become more important as the Department of Labor fiduciary rule goes into effect on April 10, 2017. Training new employees will become a critical part of going business, as even inadvertent violations of the DOL regulations can have serious consequences. 

In addition to the three critical steps outlined above, it is very important for advisors, financial planning firms, and wealth management companies to stay abreast of all new communications and upcoming regulations from the Department of Labor. Some media pundits have already speculated that the election of incoming President Trump will have a major impact on the financial planning industry as a whole and the soon-to-be-implemented Department of Labor fiduciary rule in particular.

Given the recent shift toward Republican rule and a new anti-regulation environment, it is entirely possible that the new fiduciary rule could be scaled back, or even overturned completely, once the new administration takes power. For the meantime, however, financial planners and the owners of wealth management firms would do well to get ready for the transition.

After all, April 10, 2017, will be here before you know it, and now is the time to get ready for the new DOL regulations. By the time April rolls around, you will be busy answering your clients' tax questions and giving them last-minute advice on tax loss harvesting and strategies for minimizing their taxable incomes. Knowing that you have the Department of Labor fiduciary rule firmly in hand and that your firm is fully compliant will give you one less thing to worry about and allow you to focus 100% of your efforts on your clients and their financial success.

 

Subscribe by Email