Understanding the DOL’s Fiduciary Rule

It has swept headlines, sparked water-cooler conversations and ignited heated discussions in countless Congressional hearings. If you’ve kept a pulse on the regulatory world over the past few months, chances are you’ve heard about the release of the Department of Labor (DOL)’s fiduciary rule for retirement plan advice. But what, exactly, does the legislation entail? And more importantly, how does it affect retirement plan advisors, plan sponsors and participants?

The Latest on the DOL's Fiduciary Rule

The Timeline

Though the buzz around the rule has increased over the past year, the legislation is actually six years in the making: it was initially proposed in 2010, but was withdrawn in 2011, following strong industry opposition and resistance from both sides of the aisle.

The DOL went back to the drawing board and reintroduced the proposal for public comment last April. After several attempts by lobbyists, legislators and industry opponents to block the rule (including a failed attempt to attach it to the omnibus spending bill at the close of 2015), the legislation was delivered to the Office of Management and Budget (OMB) for review in January.

On April 6, the rule made its official debut to the public.

The Purpose

Essentially, the purpose of the rule is to revamp the five-part fiduciary test developed shortly after the passage of the Employee Retirement Income Security Act (ERISA) of 1974. The test was intended to define which investment advisory relationships are considered “fiduciary,” using five key standards.

So what’s the problem? As a whole, the retirement plan industry has undergone several major shifts since the mid-70s, but the basic rules governing retirement plan advice didn’t evolve to accommodate these changes — in fact, under the old regulations, many plan advisors had no obligation to serve as ERISA fiduciaries and offer objective, tailored advice needed to navigate these changes.

The Impact

With the final rule, every retirement plan advisor is required to abide by the fiduciary standard of care. And that might spell bad news for many broker-dealer representatives.

Fiduciary - Avoiding Conflicts of Interest

Under the old legislation, broker-dealers weren’t legally required to uphold the fiduciary responsibility to their retirement plan clients, possibly giving rise to conflicted, faulty practices that were not in the best interests of the plans or their participants. Under the new legislation, however, broker-dealers will be forced to redefine their services to align with the fiduciary standard of care, overhauling the ways in which they currently do business.

For registered investment advisors (RIAs) who currently uphold the fiduciary standard of care, including our firm, the rule doesn’t change anything. Being a fiduciary means providing advice and recommendations solely based on an investor’s values, priorities and goals — a standard of service that we’re proud to deliver to our own clients, now and in the future.

Click here for more insight into how the ruling will reshape the industry — and what that means for non-fiduciaries.

Have questions or simply want to learn more about the rule? 
Click here to contact a member of our advisory team

 

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
OneBite Editorial Staff
OneBite Editorial Staff

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Understanding the DOL’s Fiduciary Rule

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