Fiduciary Snapshot: The Future of the Rule
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Fiduciary Snapshot: The Future of the Rule

With the amount of news coming from Washington, it’s easy for Americans to forget about the U.S. Department of Labor’s (DOL) Fiduciary Rule, which had been set to phase into effect last month. But amidst the flurry of headlines, the Fiduciary Rule has undergone several changes since our last update.

Some quick background: The DOL passed the Fiduciary Rule to be enacted beginning April 10, 2017. The rule required all financial advisors and brokers to act in “the best interests” of their clients when it comes to retirement accounts, including 401(k)s, individual retirement accounts, IRA rollovers and other retirement-qualified funds (the rule doesn’t affect non-retirement accounts). Experts believed that the rule would have affected more than $3 trillion in retirement assets in the United States.

How is the Fiduciary Rule Different?

Many brokers – or “financial advisors” who are not fiduciaries – simply had to meet a “suitability standard,” meaning that they could conceivably steer clients into products that pay the advisor a higher commission, if that product is “suitable” for that client. Proprietary products, such as proprietary annuities, can still be sold under the rule if appropriate disclosures about the product or compensation are made.

[Is it time to break up with your broker?]

Personal Capital & the Fiduciary Standard

Personal Capital was built around the fiduciary standard, we are – and always will be – a fiduciary of our clients’ money. We promise to provide advice that is always in our clients’ best interest, and because we are a Registered Investment Advisor (RIA), it is our obligation to act in our clients’ best interest, and not serve our own bottom line first.

The Current Status of the Fiduciary Rule

Shortly after President Trump took office, he issued a memorandum that instructed the DOL to carry out an “economic and legal analysis” on the rule’s potential impact, delaying the implementation by 180 days. A month later, on March 3, the DOL issued a proposed rule for a 60-day delay of the rule’s applicability date to June 9, and a week later, said it wouldn’t enforce the rule until June 9 (the proposed date of delay). On April 5, the DOL officially delayed the April 10 implementation date to June 9, which leaves the possibility for additional delays.

Labor Secretary Alexander Acosta has since then stated in a Wall Street Journal opinion piece that the DOL has “found no principled legal basis to change the June 9 date[.]” According to Forbes, this means that firms and financial advisors who work with retirement accounts will need to be compliant and communicate changes to their clients within a few weeks.

The Latest Buzz

  • Yesterday, the Wall Street Journal published an opinion piece from Labor Secretary Alexander Acosta, which stated that the major changes to the financial services industry will now occur by the June 9 deadline, with full implementation kicking in on January 1, 2018. Acosta’s article noted that deregulation is still coming, which is in line with the president’s agenda, but neither he nor the president alone have the authority to stop the rule. It is expected that between the June deadline and January 1, the DOL will move forward with either overturning or modifying the rule as it currently stands. Read more…
  • Last Thursday, Republican lawmakers and opponents of the Fiduciary Rule, called for a further delay to implementation, citing that “new empirical evidence based on actual experience shows that the academic predictions dismissing the rule’s harmful effects.” Bradford Campbell, a partner at Drinker Biddle & Reath, told lawmakers that a survey conducted by the Investment Company Institute found that financial advisors are abandoning smaller accounts. Financial services counsel of the Consumer Federation of America, Micah Hauptman, questioned the survey’s results, saying there is no factual basis to support these claims. Read more…
  • Despite the strong stance Merrill Lynch took against new, advised commission-based IRAs in October, the company announced it will now allow advisors to receive commissions from some transactions in individual retirement accounts under the DOL’s rule. The head of Merrill Lynch Wealth Management, Andy Sieg, said the company analyzed limited situations in which a fee-based arrangement might not be in clients’ best interests, and “have considered alternatives to Investment Advisory Program for these situations.” Read more…
  • The former CEO of Vanguard and current chair of FINRA’s board of directors, Jack Brennan, expects that FINRA and the SEC will eventually create similar regulations regardless of the DOL’s passing of the rule. According to On Wall Street, Brennan believes that the “best-interest measure of advice” will eventually be the “de facto industry standard.” Read more…

For more fiduciary news, keep an eye on our blog and to learn more about Personal Capital’s fiduciary responsibilities, schedule an appointment with an advisor today.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Amin Dabit is the Vice President of Advisory Services at Personal Capital. Amin brings over a dozen years of experience in private wealth management and financial planning. Amin leads Personal Capital's advisory team to identify and establish strategies for reaching clients' financial goals by providing comprehensive, customized financial advice designed to improve their financial lives.
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