Commentary: The Department of Labor's new proposed fiduciary regulations have caused quite a bit of excitement in the retirement plan community. A frequent question has been who is and who isnt affected. Following are my thoughts on the effects of the new rules.
Who is not affected
Registered investment advisers, existing plan fiduciaries, plan participants and plan sponsors will not be affected or will be minimally affected by the new rules. Anyone who is a fiduciary now will continue to be a fiduciary in the future, with little or no difference in how they interact with retirement plan sponsors or participants.
Plan sponsors, meanwhile, will not see any change in the content or type of fiduciary services or advice they receive from their advisers (unless their adviser is not currently serving as a fiduciary). Plan participants who have been receiving advice (from services like Financial Engines) will experience no change in the quality or content of the services they receive.
Also see: DOL Fiduciary rule falls flat
Who is affected
Investment advisers who work for brokerage firms now have a path to follow to act as fiduciaries with their retirement plan clients. The DOL has gone through considerable effort to outline a methodology these advisers can adopt/follow that doesn't require a significant change to their existing business models. The primary thrust of the new proposed rules appears to be to provide a map to fiduciary responsibility for brokerage firm advisers.
Who are the winners
Many brokerage firm associations, advocacy groups and sympathetic observers have not received these regulations with as much equanimity as they deserve. It is absurd that all investment advisers are not held to the same fiduciary standard at the present time and silly that there won't be a uniform fiduciary standard for all to follow. The proposed regulations provide a path to fiduciary compliance for brokers that is much less onerous than many experts expected. If your adviser works for a brokerage firm, they should be elated with this set of regulations.
In its effort to avoid disrupting brokerage firm business models, the DOL has inserted what appear to be the maximum possible number of exemptions, exceptions and exclusions into the proposed regulations. Clearly the Obama administration felt that any fiduciary standard for brokers was better than no fiduciary standard. All of the complaining and whining (otherwise known as lobbying) that the brokerage industry has done over the years to avoid fiduciary responsibility has proven to be remarkably successful.
Brokers and those investment advisers currently not acting as fiduciaries to their retirement plan clients owe a big debt of gratitude to the DOL and the Obama administration for providing a watered down set of fiduciary rules. This could (and should) have been much worse for them and their industry. Law firms must be salivating at the hundreds of pages of exceptions and exclusions which will need to be adequately clarified by litigation as the years roll by.
Robert C. Lawton, AIF, CRPS is president of Lawton Retirement Plan Consultants, LLC, an RIA firm helping retirement plan sponsors with their investment, fiduciary, employee education and compliance responsibilities. He may be contacted at firstname.lastname@example.org or 414.828.4015.
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