Fiduciary Rule: D-Day June 9th


The fiduciary concept has taken center stage in recent years as investment firms and financial advisors brace for inevitable change. Don't worry your not alone if you haven't heard of the Department of Labor's fiduciary rule. According to a survey conducted by Financial Engines only 32% of adults had heard of the fiduciary rule.

So what's the fiduciary rule and how will it change the financial advice industry?

Previously I published an "Investor's Guide to the New Fiduciary Rule" if you need a quick refresher but in summary its a highly contested piece of legislation focused on mitigating conflicts of interests that arise when advisors provide recommendations on retirement accounts.

The Obama administration spent five years crafting the Fiduciary rule to stop and prevent the $17 billion a year investors waste in exorbitant fees. Originally the rule was set to become effective April 2017, however in March the implementation date was postponed after President Donald Trump directed the DOL to re-evaluate. Despite significant opposition, Department of Labor Secretary Alexander Acosta announced on May 22nd that there would be no further delay in the rule.

Following the announcement shares of Primerica $PRI, Stifel $SF and LPL Financial Holdings $LPLA all fell more than 3% and eventually recovered from the heaviest losses in late trading. Many companies have already began adopting the DOL's policies as reforms encourage advisors to shift from selling commission-based products to fee-based advisory accounts.


Starting on June 9th, firms must comply with the fiduciary definition, as well as provisions concerning conflicts of interests and impartial conduct. Firms have until January 1st, 2018 to comply with full written disclosure requirements and policies. However, between now and January many expect the DOL to attempt to overturn or modify the current rule. One reason is the explicit costs of compliance, a study by A.T. Kearney predicts complying will lead to as much as $20 billion in lost revenue through 2020, and $2 trillion in assets will shift among different firms. In the first quarter of 2017, more than 20 firms and organizations spent more than $3 million on lobbying to modify or oppose implementation. Those in the industry who oppose the DOL rule are citing a list of grievances such as the annual cost of compliance and loss of revenue. The Life Insurance Marketing and Research Association predicts variable annuity sales could drop by as much as 30% and fixed annuity sales could decline by 5% to 10%.

However, not all companies are working to dismantle the fiduciary rule, for example TD Ameritrade. They spent $50,000 lobbying on the rule, created a "DOL Fiduciary Rule Resource Center" and publicly advocate for the rule which protects investors money. This is an obvious reason we custodian our client's assets at TD Ameritrade Institutional. Ultimately, we believe firms that make investor-friendly changes will be better off and come June 9th history will be made.

- Timothy Hooker, Accredited Investment Fiduciary, Chief Compliance Officer and Private Wealth Manager


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