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DOL Rule Implementation Leaves FAs No More Certain

June 12, 2017

The Department of Labor’s fiduciary rule went into effect Friday, but how it affects the wealth management industry will vary depending on the market participant – particularly in light of the ongoing review of the rule and the flexibility the DOL is granting the industry, the Wall Street Journal writes.

The rule, which forces retirement account advisors to operate under a fiduciary standard rather than a suitability standard, only went into partial effect last week. Until its full implementation date, scheduled for January 1, advice firms will be operating “on the honor system,” according to the paper.

Some disclosures about potential conflicts of interest aren’t required in the meantime, for example, the Journal writes. Neither are advisors required to sign best interest contracts with their clients – a provision that lets brokers sell some commission-based investment products, according to the paper.

And some compliance requirements may be dropped as the DOL continues reviewing the rule, as directed by a memorandum from President Donald Trump.

Advice firms, meanwhile, have taken different tacks on preparing for the rule, with Merrill Lynch banning commission-based retirement accounts except for limited cases, while Wells Fargo and Morgan Stanley customers still get a choice between commission- and fee-based accounts.

Meanwhile, Congress is trying to kill the rule as part of a bill aimed at overhauling the Dodd-Frank financial regulation reforms. The House of Representatives has approved the bill with a provision requiring the SEC to come out with its own fiduciary rule before the DOL can roll out its version. However, the bill, despite having support from Trump, isn’t likely to pass the Senate.


Instead, Republicans could “tweak” the deregulation effort, Frederick Cannon, a chartered financial analyst at Keefe, Bruyette & Woods, tells ThinkAdvisor.

Cannon believes it’s possible to expand the list of products covered by the best interest contract exemption, ease reporting requirements and paperwork, and revise the class-action provision to limit potential lawsuits against advisors, according to the publication.

But while many financial industry executives might believe the DOL should ease up on its rule implementation, it’s unclear whether the wealth management industry would ever actually be able to return to a pre-fiduciary rule way of doing business, according to Bloomberg. The principle of fiduciary duty was “inevitable,” Thomas Buberl, CEO of Axa SA, said earlier this year, according to the news service.

By Alex Padalka
  • To read the ThinkAdvisor article cited in this story, click here.
  • To read the Bloomberg article cited in this story, click here.
  • To read the Wall Street Journal article cited in this story, click here.