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Point of View: Update on the Proposed DOL Fiduciary Rule

Point of View: Update on the Proposed DOL Fiduciary Rule

Posted By: Chuck Lowenstein
Updated: July 28, 2017


This article no longer has the latest information on the previously proposed DOL Fiduciary Rule. For the latest news and information on the rule, check out our article DOL Fiduciary Rule DOA, SEC Steps Up.

Disclaimer: Chuck Lowenstein is a Senior Editor at Kaplan Financial Education. The opinions expressed in this article are solely those of the author based upon personal research and observations. They should not be viewed as legal advice.


Much has changed since my last article on this issue over five months ago. Yet there are still many unanswered questions. The DOL has received nearly 4,000 comment letters from the industry on their proposal, an unheard of number for any other previous rule. In addition, there were dozens of hearings and many private meetings between government, industry, and consumer protection organizations.

During the final week of January 2016, the DOL sent what is likely to be their final version of the rule to the Office of Management and Budget (OMB). The OMB has up to 90 days to review the rule and, assuming they sign off on it, the final rule should be released publicly sometime in early April.

The issues for the broker-dealer community remain largely the same; the increased liability and regulatory costs will make providing advice more expensive and, as a result, those who need the advice the most (the small investor), will be priced out of the market. Another issue is the short time period permitted for compliance (approximately 8 months after the effective date). Most in the industry believe it will take more than a full year for all of the pieces to be put into place to avoid running afoul of the rule.

Historically, the role of the stockbroker (registered representative), has been one of a salesperson of products with compensation in the form of commissions. Some products, in particular those which are proprietary to the broker-dealer, carry a higher payout. So, if all other things are equal, it is a natural tendency to push that which will earn the registered representative the most. Is that operating in the client’s best interest? That is the important question. If the product (mutual fund, variable annuity, or limited partnership program) fit the client’s needs and involved no greater cost, one could answer in the affirmative. However, in the real world, this was not often the case. Part of the genesis of the proposed rule came from the study that billions of dollars in added fees and commissions were being paid by participants in retirement plans because lower cost alternatives were not being offered.

Today, rare is it that you find a registered representative being introduced as a stockbroker. The preferred term has become financial advisor, or just FA. Use of the term advisor creates an entirely different image (and expectation) among clients. Investment advisers have long had a fiduciary obligation. That is, the client’s interests always come first. And, studies have shown that clients of these FAs believe that the same standard applies to them. Assuming passage of the rule, it will, at least when it comes to advising on retirement plans. And, if the SEC has its way, their fiduciary rule will cover broker-dealers in a much wider frame of services. According to testimony given by SEC Chair Mary Jo White in late March, “Assuming there was a DOL rule that preceded ours and overlapped, we would continue to talk about coordination and making our rules as compatible as possible.” She further stated that rules “don’t always land identically; you try to make them land identically if you can, but the SEC and DOL are separate agencies with separate statutory mandates.”

It is clear that the trend for broker-dealers is moving away from the role of a financial intermediary facilitating distribution of securities products to one of an advisory support model where revenues come from advice. If that sounds more like an investment advisory relationship, it may well be coming to that. That would mean a significant challenge to a business model that has long operated primarily to facilitate the sale and distribution of securities product.

One of the ways many broker-dealers have been adapting is through establishing platforms for investment advisers, thus separating the functions of advice and execution (along with a number of other services best performed by brokerage firms, such as custody of client assets).

At Kaplan, we have seen a number of traditional broker-dealer clients enrolling their register reps into Kaplan’s investment adviser representative (IAR) courses (Series 65 or Series 66). Because, as stated earlier, the very nature of an investment adviser (or IAR) involves a fiduciary relationship, these firms believe that moving in that direction will facilitate compliance with the rule.

Within the past month, two major brokerage firms have taken proactive steps: a simplified mutual fund only IRA in one case; and a pilot program to let clients with as little as $5,000 get what is called “guided support” in another case.

Yet, there are others who are fiercely opposing the change, probably hoping that it might never go into effect, or that the SEC rule will give them more flexibility. An online “blind” survey of FAs found that 73% of those believed that the rule would have a negative impact on their practice. They also expected fewer investors, especially smaller ones, would receive retirement advice.

As with so much rulemaking (Dodd-Frank of 2010 is a recent example), it will take some time before the full effects of the fiduciary rule will be known.


Individuals: Follow these links to learn more about studying for the Series 65 exam or the Series 66 exam.

Organizations: Learn more about Kaplan’s enterprise solutions for licensing a large number of representatives in a structured program designed to prepare your team for these changes. For more information, please contact Adam Ellingson at 608.779.5599, ext. 2486.