A recent webcast hosted by accounting and consulting firm Grant Thornton featured Johan Joseph, principal of the financial services practice, and Melissa Dimitri, director of strategy and performance improvement, diving deep into the pending rollout of the Department of Labor (DOL) fiduciary rule.

Both said they have been very involved with client efforts to plan and execute a response to the fiduciary rule, and from their perspective, they see the rulemaking as a direct and natural result of long-term, ongoing changes taking place in the investing landscape.

“When ERISA was first implemented, more people had defined benefit pension plans,” Dimitri observed. “Individuals didn’t have as much responsibility in terms of saving for their own retirement. In recent years, of course, we have since seen a proliferation of defined contribution (DC) plans in which individuals have gained much more responsibility around saving for retirement. The spirit of the rule is to ensure that plan participants and plan sponsors get the best possible advice in this challenging new environment.”

Joseph echoed the sentiment that the DOL naturally has felt compelled to strengthen the fiduciary standard in a more DC-dominated world.

“What this rule means practically speaking is that advisers and service providers have to think a lot more about conflicts of interest,” Joseph said. “They have to be very transparent and disclose all of their fees and charges, not to mention the documentation requirements.”

Both experts concluded that, overall, the regulation is aimed at protecting retirement savings and making sure plans get the best non-conflicted advice possible. Adhering to the new standard may not be easy for some firms, but it will be necessary at some point. In fact, both experts predicted that over the longer-term, tougher regulations could also be introduced to mitigate conflicts of interest outside the purview of the Employee Retirement Income Security Act, perhaps by the SEC or FINRA. 

“These rules are not meant to punish advisers and investment firms, but some have viewed it that way,” they argued. 

NEXT: Changes already occurring 

Joseph and Dimitri expect significant numbers of providers to go down the road of utilizing the best-interest contract (BIC) exemption—especially to protect certain aspects of the traditional brokerage model that could be deemed to be conflicted under the new rule.  

“But this won't be easy, as the BIC exemption requires a ton of documentation and even with the exemption, you have to abide by the impartial behavior standard,” Dimitri warned. “The level-fee exemption will also be important—if you as the adviser can demonstrate that your fee remains the same regardless of the advice that you give, that will offer some real protection. This exemption is anticipated to be easier to comply with than the BIC, but it does have implications for the way products are priced and packaged.”

On the election results and the future of the DOL fiduciary rule, Joseph and Dimitri observed there are many people who are now convinced that the rule will be repealed, or at least dialed back, with Republicans in power—but neither of the experts seemed convinced this was likely.

“The interesting thing about this rule as opposed to some other regulations is that it’s about protecting individuals—main street retirement investors—and making sure that they get the best advice,” Dimitri said. “It’s my personal view that it’s going to be very difficult to wholly repeal the rule and do nothing to put a similar standard in its place. Our clients feel that adhering to the spirit of the rule will develop into a real competitive advantage … whatever happens with the rule in the next 6 months to a year that will still be the case.”  

“So we are recommending to clients that they should still steadily and carefully move towards the implementation,” Joseph agreed. “Sticking your head in the sand and hoping the regulation simply disappears is not a wise action.”