New Fiduciary Rule: One Major Theme to Consider

The DOL has released its much anticipated fiduciary rule, and now the long process of determining its true impact on the securities industry can begin. While the volume of material that was generated in response to the proposed rule is enormous, the final rule (incorporating feedback the Department received) will require additional analysis to fully understand its impact. With that said, financial industry professionals are already being inundated with materials related to the new rule. Rather than add to the pile, we at Bates Group are pausing for a bit while our DOL Fiduciary Rule experts prepare their thoughts and insights. We do, however, want to immediately address one major theme.

Business Practices

Many market participants may be underestimating the impact that the new rule will have on their business practices. Registered investment advisors, who are used to operating under the SEC's fiduciary standard, are one such example. While the form of the final rule did remove some significant items that would have greatly complicated their compliance activity, they must still prepare to operate under the DOL's enforcement scheme rather than the SEC's. For example, the Form ADV conflict of interest disclosures may not be enough to satisfy the DOL's standards. At a minimum, IAs must be prepared to interact with a new regulator, with dually-registered IAs facing greater changes than fee-only IAs. Broker-Dealers will face entirely new standards beyond the existing suitability rules.

Two Accounts?

Beyond that, firms must decide how they are going to handle the common situation of a client holding both retirement and other asset accounts with their firm, where the new fiduciary duty is owed only on the retirement accounts. This is further complicated by the fact that financial advisors often advise their clients on a total portfolio basis, rather than on an account-by-account basis.

Trillions of Assets at Stake

The market for retirement assets is huge, totaling $24 trillion, as can be seen in the chart below. For some investment vehicles, assets held in retirement accounts make up a substantial amount of the market -- for example, approximately $7 trillion of the $15 trillion invested in mutual funds is held in retirement accounts.

{image_1}

Source: Investment Company Institute

Bates Group is currently analyzing the full text of the rule and will be focusing our attention on how we can best serve our clients in implementing and responding to the DOL's new standard.

Should you need any assistance in understanding any aspects of the new rule, we encourage you to contact our DOL Fiduciary Rule point person Alex Russell at: 503-670-7772 or arussell@batesgroup.com