New Rule From the DOL

Man with computer at work

The past few weeks have been awash with the turmoil of changes to Social Security and Medicare, which were completely unexpected. It’s understandably been the main focus of many in the retirement planning industry, myself included. But there is another piece of legislation on the table that precedes the Bipartisan Budget Act, one that could be just as impactful.
I am referring to the proposal made in April by the Department of Labor (DOL) that would implement a rule to control conflicts of interest between advisors working with retirement accounts and their clients.

If passed, the rule would require advisors to legally act in the best interest of their clients and disclose any conflicts. Additionally, advisors would need to provide extensive information on compensation for them and their firms for assets that the advisor has worked with. Firms would still be able to establish their own compensation models within the parameters of the law.
The purpose of this rule is to protect those saving for retirement from such things as fees buried in the fine print of contracts and conflicting retirement advice, not to mention potentially saving tens of billions of dollars for middle class families. The opposition feels that this will be severely limiting to advisors and brokers, but the DOL Secretary, Thomas Perez, has stated: “Advisors can have considerable flexibility in how they get paid as long as they put their clients’ best interests above their self-interest… The rule is intended to provide guardrails but not straightjackets.”1

Despite this, the rule has been viewed as controversial since its initial proposal and has received heated opposition since that time. Most recently, a bill sponsored by Rep. Ann Wagner, R-Mo. was passed that will suspend finalization of these changes until the Securities and Exchange Commission (SEC) votes on a similar rule.

However, the DOL’s rule is expected to move forward with inexorable force, due to President Obama’s staunch support.
Though, the opposition of this rule extends past the steps of Congress. Many view the rule as restrictive to advisors, which gives it the potential to negatively impact financial professionals and their clients in the process. Under the rule, contracts signed by clients (which are necessary for an advisor to have a relationship with a client) will place both the advisor and firm under increased liability regarding recommendations. As a result, it will become more challenging for advisors to provide their clients with financial advice.

But despite the negatives and possible action by opposition, the DOL is supported by the President and is in a good position to defend the rule. The DOL has made their bill public from the beginning, offering many chances for comments, both from supporters and opponents. This was done carefully to avoid mistakes that could grant said opposition a chance to successfully make changes from a legal standpoint.

In short, the rule will likely see more opposition as time goes on, but it has built enough support that there’s no real way to stop, or even significantly delay it now. While the DOL and President Obama are confident in their predictions for the rule, the true impact remains to be seen.