The final DOL fiduciary rule is finally here, but before we dive into some of the specifics, I want to start by clearing up some of the common misunderstandings you may have heard about the rule.
First and foremost, the rule does not ban commission-based products. Within the Best Interest Contract Exemption (BICE), the DOL has stated that "the exemption makes clear that it does not ban commissions or mandate rigid fee-leveling (e.g., by requiring identical fees for recommendations to invest in insurance products as to invest in mutual funds)." The DOL is aware of the different types of adviser compensation practices that exist in the retirement marketplace.
Second, the DOL did not place restrictions on the types of investments that will be permissible as long as it is in a client's best interest. The proposed rule did limit the number of investment products that can be offered to retirement clients when the BICE is considered. Nevertheless, the DOL stated that "the final exemption does not limit the types of investments that can be recommended by Advisers and Financial Institutions."
The final rule retains the same framework as the proposed rule, with certain modifications and clarifications. The final rule defines who is a fiduciary, resulting in the inclusion of more individuals to be considered fiduciary when working with clients' retirement assets. In addition, it includes exemptions that will allow advisers and financial institutions to continue receiving different forms of compensation, as long as they are willing to abide by the new standards.
|Update to Fiduciary Definition||Replaces the narrow five-part test for investment advice|
|Plan Types in Scope of the Rule||ERISA Plans, IRAs, Health Savings Accounts, Archer Medical Savings Accounts, and Coverdell Education Savings Accounts
|Clarification of What Is Not Investment Advice||Education, general communications, platform providers, transactions with independent plan fiduciaries, swap transactions, and employees of company retirement plans
|Highlights of Best Interest Contract Exemption (BICE) Changes||
|Highlights to PTE 84-24 Changes||
The document contains more than 1,000 pages, so it will take some time to review and digest the rules. As we go through the details and get more clarification on the specific sections of the rule, we will follow up with new blog posts to help you better understand these items.
Should you have any questions, please feel free to contact us directly at (800) 722-2333, ext. 3939, or send an e-mail to RSG@PacificLife.com.
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