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What to Expect from the DOL Fiduciary Rule

Drew Harper, CFP®, CFA - Wednesday, June 7, 2017

DOL Fiduciary Rule | M.J. Smith & AssociatesThis Friday, June 9, a transition begins toward full implementation of the U.S Department of Labor’s (DOL) Fiduciary Rule – a rule first proposed and approved by the Obama administration, but later delayed by President Trump for further review. The Fiduciary Rule, which has been a source of controversy in the financial services industry for years, affects advisors who provide retirement advice, specifically around IRAs, 401(k) plans, and other plans covered by the Employee Retirement Income Security Act of 1974.


What is the Fiduciary Rule?

At a high level, the Fiduciary Rule requires retirement advisors and their institutions to place their clients’ best interests first, and that may leave some of you wondering, “Don’t they do that already?” The answer is, not always. While Registered Investment Advisers (RIAs) must meet a fiduciary standard under the Investment Advisers Act of 1940, some broker/dealers who also use the title “advisor” are exempt from the standard, as long as the advisory services offered are solely incidental to the conduct of his/her business, and the advisor does not receive special compensation for advice.

The problem for most consumers is, because anyone can claim to be an advisor, some clients don’t know what they’re getting. Is it advice limited to the sale of a product, or investment advice in their best interests?

For the record, M.J. Smith & Associates is a fiduciary firm. But even though the law holds us to the standard for RIAs, we would have chosen to be a fiduciary firm in any case. Many of us are CERTIFIED FINANCIAL PLANNER™ professionals, which obligates those who receive the certification to voluntarily place their clients’ interests first. Looking out for our clients’ best interests is central to our philosophy as a firm, and it has been that way since Mark Smith opened the doors in 1983.


Money During Retirement | M.J. Smith & Associates


What Can You Expect Now?

According to the DOL, consumers can expect June 9 to bring an amended definition of fiduciary advice. In a Frequently Asked Questions” document published in May, the DOL explained that during the transition period, which ends on January 1, 2018, financial institutions and advisors must comply with “impartial conduct standards.” At the same time, something called a Best Interest Contract Exemption (BIC), and a Principal Transactions Exemption will go into effect.

During the transition, advisors and their institutions must:

  • Give advice that is in the “best interest” of the retirement investor, and adhere to two chief components of the standard, which include prudence and loyalty.
    • Under the prudence component, advice to a client must meet a professional standard of care as specified in the text of the exemption;
    • Under the loyalty component, advice to a client must be based on that client’s interests, rather than the competing financial interest of the advisor or firm;
  • Charge no more than reasonable compensation; and
  • Make no misleading statements about investment transactions, compensation and conflicts of interest.


What Happens on January 1?

During the transition, the DOL will continue to review the Fiduciary Rule, which, even though its essence is worthy, contains a number of flaws that could increase compliance costs and expose plan sponsors and retirement advisors to increased litigation. Some experts have speculated that the Fiduciary Rule may undergo a “full-scale rewrite,” while others expect that the Rule could be relaxed.

In the meantime, those seeking any kind of financial advice should ensure that they ask the right questions when selecting an advisor. Ask how the advisor receives compensation, and whether he or she receives incentives – either from the firm or a product provider. Finally, just ask the question: “Will you work in my best interests, and if so, will you put it in writing?”

If you don’t hear a resounding “yes,” keep looking, or contact M.J. Smith & Associates for a complimentary portfolio review. Your plans are our priority, and we would be our privilege to help.




The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Drew Harper and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Links are being

provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

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