Demystifying the DOL: Your Weekly Guide to the Impending Fiduciary Rule

3 questions answered DOL Fiduciary Rule Conflict of Interest Rule


Image courtesy of the U.S. Department of Labor

The Department of Labor (DOL) Fiduciary Rule will have a profound impact on most advisors, distribution firms and carriers that work with qualified funds. In this weekly series, we want to help advisors, especially principal advisors, garner an understanding of the law, the implications of the rule on advisor operations, and what you can expect with respect to operations as the rule is implemented this year.

In our first post we’d like to provide a brief summary of what’s to come.

The Principal Advisor in a practice will be faced with a number of key decisions stemming from the DOL rule, including:
  • Whether he or she wants to remain in the business of selling financial services for qualified funds.
  • Whether to continue to receive commissions on the sale of products (versus aligning the business with a fixed AUM compensation model).
  • The choice of distribution partner, which, in the DOL environment, is a “Financial Institution” which must apply significant oversight to numerous aspects of the advisor’s practice to continue to accept business.

The DOL rule creates significant new expectations for what is deemed a “recommendation.” Advisors must conduct, in all cases, significant due diligence for the client, supporting both the recommendation of an asset class and the selection of the fund or product sold.

The Principal Advisor must be prepared to augment their practice’s operations with the capabilities to support the DOL. The specific requirements will be dictated mostly by the Financial Institution countersigning the Best Interest Contract.

The areas in which the practice will be impacted include:
  • Contact management/CRM to track recommendations and provide a system of record for transactions conducted under the Best Interest Contract.
  • Needs analysis and/or financial planning tools.
  • Product selection tools (unless the Financial Institution levelizes compensation among available products).

Join us each week as we unpack these challenges and help you find feasible solutions to all of your DOL concerns.

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