After six years of back-and-forth, the amendment to the definition of fiduciary was finally release as the final rule on Wednesday, April 6, 2016.

Final Fiduciary Rule Changes Will Affect Financial Advisors and Brokers Alike

The rule would eliminate some of the loopholes that allow brokers to avoid acting as fiduciaries when providing advice on retirement money held inside 401(k) and individual retirement accounts (IRAs). Investors are particularly vulnerable when rolling over 401(k) accounts from employers into IRAs, as brokers advising on the transaction do not have to act in the client’s best interests and could be influenced by commissions or incentives in place for certain products. The new rule expands the definition of “advice” and requires advisors and brokers charging commissions on products to enter a contract with clients stating that they are putting the investors’ interest first and disclose any conflicts that would prevent them from doing so. For those advisors who are fee-only, not using commissioned products, or acting as a fiduciary already, the rule may have a lessor impacts to their business.


The Basics: What is the Fiduciary Rule?

The rule requires professionals receiving compensation for providing advice to individuals or to an employer with a retirement plan to act in their clients’ best interests, or act as a fiduciary.

What is the timeline for implementation of the rule?

As you consider these potential changes to our profession, evaluate the impacts to your practice:

April 6, 2016 Final rule released by DOL
April 6 – June 6, 2016 60-day Congressional review period
April 6, 2016 – April 6 ,2017 Implementation period
April, 2017 – January 1, 2018 Phased-in full compliance with rule and Best Interest Contract Exemption (BICE)

How is the final DOL Fiduciary Rule different from what was proposed?

The final rule released by DOL was significantly streamlined from what was initially proposed. Several of the changes involve the so-called Best Interest Contract Exemption (aka BICE or BIC Exemption). The legally binding exemption requires advisers to act as fiduciaries, but also gives them flexibility in compensation arrangements, allowing them to charge commissions or take revenue sharing.

Critics of the proposed rule were concerned that advisors would be required to have the BIC Exemption go into effect before beginning a discussion with a prospect or client. However, the final rule clarifies that the BICE contract does not have to be signed until an account is opened. The disclosures required under the contract have also been reduced, including the elimination of the one-, five- and 10-year projections of returns and fees at the point of sale. The exemption has been clarified to ensure there is no bias against the sale of proprietary products. Commissions on securities sold in retirement plans will be allowed, but a BIC Exemption contract will need to be signed.

   Best Interest Contract Exemption Guidelines


BICE only needs to be an agreement between your firm and your client (no third-party agreement required, as was initially proposed)


The BICE can be applied to existing clients via negative consent, so you don’t have to repaper your accounts and get new signatures


IRA rollover clients can sign BICE at account opening; they are not required to sign prior to delivering rollover account advice, as was required in the proposed rule.


BICE is available for advice on 401(k) plans as well as participants and IRAs


Recommendations to existing clients will be grandfathered from BICE requirements, so long as the advice satisfies basic best interest and reasonable compensation requirements.


Must direct clients to a page on advisor’s website which discloses compensation arrangements for the advisor and firm, to provide complete information on fees charge to clients.

In addition to the BIC exemption, the rule has a principles-based exemption for principal transactions which allows advisors to recommend certain fixed-income securities and sell directly to clients, as long as the advisor follows the exemption’s consumer-protective conditions. The new low-fee exemption allows advisors to accept payments that would otherwise be considered conflicted, if they are recommending the lowest-fee product in a given product class. The low-fee exemption also has fewer requirements than the BIC exemption.

Another hotspot for many advisors—the list of approved investment products for retirement accounts—has been removed from the final rule.

Who does the new rule apply to?

The definition of fiduciary is based on the type of advice given, rather than the type of person giving the advice. The fiduciary can be a broker, registered investment advisor, insurance agent, financial planner or other type of advisor. There are four groups who are exempt from the rule:

  • Those who do not represent themselves to be ERISA fiduciaries, and who make it clear to the plan that they are acting for a purchaser or seller on the opposite side of the transaction from the plan, rather than providing impartial advice.
  • Employers who provide general financial or investment information, such as recommendations on asset allocation, to 401(k) participants, or investment education.
  • Those who market investment option platforms to 401(k) plan fiduciaries on a non-individualized basis and disclose in writing that they are not providing impartial advice.
  • Appraisers who provide investment values to plans to use only for reporting their assets to the DOL and IRS.


How does this rule affect you? Will you be changing your business model to accommodate the new rule? What response has your broker/dealer had to the rule? A fair share of the compliance burden will be borne by B/Ds who may or may not be equipped to handle it. Many advisors feel that the rule will create opportunity in the profession, as older advisors will choose early retirement over revamping their business to comply with the new rule. Are you positioned to adapt, capture business and thrive in the new regulatory environment? Join Carson Group and TD Ameritrade to learn more.

How are you preparing your practice for the new Fiduciary Rule? Tweet using #FiduciaryRule to share your ideas or questions on how this may impact your firm.


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