The U.S. Department of Labor (DOL) Fiduciary Rule which was scheduled to become effective April 10, 2017, has been delayed until June 9, 2017. It will become effective on June 9, 2017, unless action is taken to modify or terminate the policy. The ruling applies to all investment advisors that give investment advice on retirement plans, including IRA accounts, or provide retirement planning. The rule is designed to make sure advisors put their client’s interest first when giving investment advice within retirement plans, as D’Arcy Capital has always done. Unfortunately, this is not the case with all advisors. The rule is expected to mostly impact broker-dealers and those advisors that were operating as non-fiduciaries when providing investment advice on retirement accounts.
The Final Rule
“In order to protect the interests of the plan participants and beneficiaries, IRA owners, and plan fiduciaries, the exemption requires the Financial Institution to acknowledge fiduciary status for itself and its Advisers. The Financial Institutions and Advisers must adhere to basic standards of impartial conduct. In particular, under this standards-based approach, the Adviser and Financial Institution must give prudent advice that is in the customer’s best interest, avoid misleading statements, and receive no more than reasonable compensation.” (Department of Labor, Final Rule, April 8, 2016)
Fiduciary vs. Suitability
Where D’Arcy Capital has always maintained a fiduciary standard, financial salespersons such as broker-dealers are held to a lesser standard called suitability. The fiduciary standard requires advisors to place client’s interest above their own. Suitability only requires the investment to meet the clients’ needs and objectives. Under the fiduciary standard we are required to have reasonable fees and disclose to our clients all conflicts of interest, the suitability standard has no such requirement. So when recommending investments, if two investments are similar we are required under the fiduciary standard to choose the investment with the lowest fees. Under the suitability standard, advisors may select the product or investment that gives them a greater commission or bonus, which would result in a higher fee to the client.
We believe that D’Arcy Capital will be minimally affected by the new ruling. This is because D’Arcy Capital has always operated as a fiduciary to our clients for both retirement and non-retirement accounts. However, there will be more scrutiny for rollover IRA’s from 401k plans or other ERISA based plans which will require additional compliance reporting.