DOL finally weighs in with stricter retirement rules

Federal rules governing how financial advisors handle their clients’ retirement investments became stricter under recently unveiled U.S. Department of Labor (DOL) regulations.


A look back

The regulations, which were the subject of much debate in the financial services industry for more than six years, set what is known as a fiduciary standard, or conflict-of-interest rule, for financial advisors and brokers. A key section of the fiduciary rule requires advisors to put clients’ best interests ahead of their bottom line.

The DOL first issued a much more restrictive proposal in 2010 that, in part, would have curtailed advisors from offering proprietary products. While the DOL rescinded that proposal the following year and presented a new one in 2015, its second proposal also faced challenges. Among the criticism was that some of the provisions would greatly increase costs to advisors and thus hamper their ability to help clients. In all, the DOL received more than 3,000 comment letters on the proposed fiduciary rules.


Clarity on the new standard

The new DOL rules lay out who is, and who is not, considered to be a fiduciary — the legal term for advisors putting clients’ interests first — when providing advice on IRAs and defined contribution retirement plans such as 401(k)s. The DOL also drew a distinction between basic investor education and fiduciary advice. In the regulations, the rules outlined examples — such as communications to 401(k) plan participants describing investment options without specifically recommending particular products or strategies — as information that would not trigger the fiduciary tripwire and be considered “recommendations” under the rules.

A central component of the new regulations is the provision that advisors cannot accept compensation or payments that would create a conflict unless they qualify for an exemption that ensures the client is protected. A large portion of the regulations cover the specifics of the “Best Interest Contract Exemption,” or BICE. If there is compensation involved that could pose a conflict, the advisor will be required to provide to the client a contract that promises to put their interests first, discloses any conflicts, and directs clients to a website with consumer information.


What it means now and in the future

Initially, the financial industry expressed concern that the fiduciary rule would mean advisors would have to provide a contract even before they began talking with a prospective client. But the final rules allow for the contract to be signed at the same time as other account-opening documents. However, there is the stipulation that any advice given prior to signing the contract must still be in the client’s best interest. The contract provision will not be required to go into practice until 2018.

The new fiduciary standards also addressed a number of required disclosures related to contracts, transactions, and web-based communications. For example, before or concurrent with a recommended investment transaction, the financial institution must provide the investor with a disclosure that, among other requirements, states the best interest standard of care the advisor and the financial institution plan to provide, and describe any material conflicts of interest.

Some provisions go into effect in April 2017, but firms must be fully compliant by January 2018.

Carefully consider the Funds' investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Funds' prospectuses and their summary prospectuses, which may be obtained by visiting or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.


Investing involves risk, including the possible loss of principal.

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