The DOL Proposal – What Does It Mean For You?

Much has been written, and much more will be, about the current Department of Labor (DOL) rule proposal concerning conflicts of interest.  There should be because this proposal covers a lot of ground. When ERISA was put in place in the mid-1970s to give the DOL plan oversight, IRAs had just come into existence and 401k accounts were not yet available.  The proposed DOL rule was initially put forward in 20101, but a series of rules were not put forth for comments until early 2015.  Over 3,000 comments were submitted, which ranged from near praise to unnecessary oversight.  Many called for implicit inclusions/exclusions – e.g. advisory fee-based accounts implicitly called as allowable “assets” were not in the draft rule.  Commission and revenue sharing arrangements were specifically targeted, which is why several Broker-Dealers directly pushed for a move toward fee-based advisory in their comments.

What are some of the big changes?

  • A redefinition of who a “fiduciary adviser” is and how one lands in this arena.
  • The plans covered have been expanded to include IRAs, HSAs, Archer MSAs and Coverdell ESAs.
    • IRAs are specifically addressed, mainly because rollovers from ERISA covered accounts make up a substantial portion of the inflows.
    • Some interpretations state that if an advisor recommends that his/her client rollout of an ERISA into an IRA, it is now a fiduciary level transaction.
  • A New Prohibited Transaction Exemption – Best Interest Conflict Exemption (BICE).
    • The short version is that when the client signs this, the firms can continue “business as usual,” as long as they have processes to prevent future conflicts of interest and they make clear disclosure of current conflicts.
    • Enforcement expansion – The DOL currently has the power to bring action against fiduciary advisors and plan sponsors. With the new ruling, the IRS will also be able to “impose an excise tax on those transactions based on conflicted advice,” and account owners 2 will be able to bring class action lawsuits against advisors if people are harmed when the advisor doesn’t act in their best interest.  

Anyone providing investment planning advice to ERISA covered plans and the above-mentioned account types will be impacted.  Those firms already abiding by a fiduciary standard will be less severely strained to meet the anticipated requirements.  Those without a fiduciary standard already in place are often held to a suitability standard, so those firms or populations are expected to have major changes.

  • Low dollar value accounts – Risk to provide fiduciary standard to accounts below a certain threshold is too great.
  • Individual investors – Either a push towards advisory relationships or non-discretion, commission only accounts with no advice; clients with both ERISA covered and not covered plans may be forced to receive fractured advice.
  • Broker-Dealers – broker-dealers and wirehouses will have the funding and support to ratchet up to added requirements, oversight and disclosures; small and mid-sized broker-dealers will have a hard time absorbing these costs.
  • Financial advisors, insurance brokers, variable annuity companies/product designers

Where does the rule sit now?

The short answer is: the rule is with the Office of Management and Budget (or the OMB).

The longer answer is that the OMB has up to 90 days from receipt to provide feedback.  It then gets moved from the DOL to a formal proposal, and it has a 60-day review as part of the Congressional Review Act.  Assuming nothing else impacts that path, compliance could be expected approximately 8 months later.  There may be an extended implementation timeline.  From the Wall Street Journal, “The final rule adopts a phased-in approach that requires firms to be compliant on several broader provisions by April 2017 and fully compliant by Jan. 1, 2018.” The Congressional Review Act period offers the industry time to continue pressing their elected officials.


  • Advisory accounts (assuming they are an allowable “asset”) will continue to take off.
    • ETFs over mutual funds (fewer possible conflicts)
  • The number of broker-dealers in the industry will be cut in half by 2020. This has already been the trend, and these rules will not affect that prediction.
  • Many advisors contemplating a succession plan will quickly move to get out of the business.
  • Robo-advisors will see a bump in assets and accounts as smaller clients are turned away elsewhere.


Suitability or fiduciary standards should NOT be account specific.  Whether for the DOL proposal or forthcoming SEC announcements or whatever form the next iteration of this looks like, my hope is that the discussion would/could/should/has to move away from an account-centric view of the world.  Providing advice on retail accounts without consideration of the client’s ERISA covered plans (or vice-versa) does not support the client’s best interest.  Isn’t that what a fiduciary standard really should be?

First Rate’s Answers

First Rate’s Fee Manager and ExecView are two solutions that will help combat the DOL ruling. First Rate’s Fee Manager solution allows broker-dealers and advisors the ability to transition to an advisor model while also providing business intelligence and insights into how certain advisors, products, or firms are delivered to clients.  To inquire about how Fee Manager can help your move to an advisory model better suited for the new DOL rulings.

The second solution is First Rate’s ExecView component within its CORE console. ExecView makes it easier to see the big picture, and then it can zoom in on exceptions and trends based on region, investment officer, objectives and many other account demographic groupings. Wealth managers can find the outliers quickly to spot problems, find efficiencies and trends on the upside, and then take action or provide documentation for compliance reviews. ExecView will change the way wealth managers oversee their firm’s business, as well as give them peace of mind.

To inquire about how Fee Manager can help your move to an advisory model, please click here. To get more information on ExecView and the powerful insight it provides, please click here.

** Much of this information is and has been sourced from several locations.  I rely on folks like Michael Kitces, Craig Iskowitz, and Tim Welsh, amongst others, for much of my Fintech and industry news.

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