After much anticipation, the Department of Labor’s Conflict of Interest rule was finalized on April 6, 2016. Over the next several months, the industry will digest the new requirements with an eye towards meeting the initial phased-in effective date of April 2017 and be fully compliant by January 1, 2018.
Although these dates may appear far off, financial advisers may wish to begin considering the implications of these changes. To help get started, we suggest the following:
- Seek counsel from your home office. It is possible, even likely, that each firm will implement different policies and procedures to comply with the new rules. Of particular significance will be if your firm will allow commission-based transactions using the Best Interest Contract Exemption (BICE), how the BICE will be executed and whether certain products will continue to be permitted within IRAs.
- Review accounts. It is worth noting that the preamble of the final rule states that fees are only one consideration when making investment recommendations. The final rule also states that recommending a commissioned-based client move to a fee-based account is a prohibited transaction if not in the client’s best interests. Lowest-cost products and fee-based accounts are not mandated by the new rule, and should not be the only considerations when making your recommendations.
- Prepare for client conversations. To the relief of many advisers, existing commission-based accounts will not be required to sign new paperwork, but rather, will receive correspondence from their firms about the rules. To the layperson, it may seem confusing to read that there is a new rule that will require advisers to put their clients’ interests ahead of their own. Some clients might even inquire about whether their interests were always put first. Advisers should prepare for how they wish to respond to these questions.
"Although these dates may appear far off, financial advisers may wish to begin considering the implications of these changes."
