Labor Department Issues Final Version of Fiduciary Standard Rule
On April 6, the US Department of Labor (DOL) released its much-anticipated and highly controversial final rule that will impose a fiduciary duty on those who provide investment advice to retirement plans and IRA accountholders. The release follows a year of debate, more than 3,000 comment letters on the topic, and Congressional measures aimed at stopping the action.
While we have long urged the Securities and Exchange Commission to formulate a fiduciary standard for those providing personalized investment advice to retail investors, we laud the DOL for taking this first step to level the playing field for investors in retirement plans and IRA rollovers. Its action seeks to ensure that investors can rely upon the integrity of the advice they receive, regardless of the business model that the advice providers use. As we have urged in the past, investors need an easier way to discern different regulatory treatment for different investment advice business models. We think a simple and effective remedy would be to reserve the term “adviser” for those who are subject to the Investment Advisers Act.
As noted in earlier commentary on this issue, while we supported the intent of the original proposal, a number of complexities would make implementation difficult, if not unworkable. In particular, we noted that it was overly burdensome, would impose excessive compliance costs, and the proposed Best Interest Contract Exemption (BICE) would result in industry uncertainty about legal liability. At the same time and in accordance with the CFA Institute Code of Ethics and Standards of Professional Conduct, we supported the overall aim to ensure that advice providers put the interests of their clients first.
We are pleased that our initial review indicates that the DOL has taken many of these concerns to heart, simplifying in many respects application of the BICE, clarifying that investors can still be provided educational materials without triggering rules relating to “advice,” and streamlining the disclosures that must be provided under the BICE. Implementation of the rule will also be phased in over 21 months, rather than the eight-month period that was originally proposed.
Access the full text of the final rule (PDF).
We will be closely reviewing the specific changes that DOL has implemented in this final rule, particularly with respect to revisions that accord with CFA Institute’s express recommendations, and will be updating you in the near future. Until then, for more information or to express additional views, please contact: