Category: Client Forum, Compliance, Conferences and Events, Industry Trends

Despite Uncertainty and Debate Around the Fiduciary Rule, It’s Time to Act


“Putting customers first is no longer a marketing slogan. It’s the law.”

Labor Secretary Thomas Perez referring to the DOL Fiduciary Rule

A simple concept, right? Unfortunately, as most pundits have pointed out, the collateral damage left in the wake of the DOL Fiduciary Rule has left many to question its merit. This is especially true when it comes to serving smaller investors due to the cost of implementation and compliance. Many [inside the industry] are speculating if the rule will do nothing but disadvantage the investing public it was created to protect.

It’s no surprise that since its announcement, the Fiduciary Rule has stirred public debate, raising provocative questions and eliciting highly-charged discussions. One of the most popular and engaging sessions at the Client Forum was “Out of the DOLdrums…”

I worked with the DOL panel, helping them develop probing questions and ensuring the views held by the panelists were challenged by our moderator, Kevin Armstrong, general counsel for DST Brokerage. If you’ve had the opportunity to see Armstrong in action, you now he’s one of the most vibrant people you’ll meet, and one of the most skilled at drawing opinions and insights out of people. Armstrong naturally rose to the challenge in Nashville!


According to the panel, the DOL debate is far from over as several financial industry trade groups have filed lawsuits, many of which look to kill the DOL rule. SIFMA, whose purpose is to speak on behalf of financial services companies and is one of the co-plaintiffs in a lawsuit, supports the creation of a uniform best interest— or fiduciary, but disagrees with the DOL’s approach to implementation. The panel acknowledged that the legal community believes the lawsuits have a chance for success; however, the outcomes are most likely months away. The panel stressed the importance of moving ahead. Firms need to consider the impact of the rule to their business and prepare for the rule, despite the uncertainty and possibility that the courts could rule against the DOL’s authority to pass laws impacting investors.

According to panelist Jackie Prester, firms can prepare for the rule by taking the following steps:

  • Review Your Accounts to identify any account that may trigger fiduciary obligations under the rule
  • Assess Availability of BIC Exemption for advisors who wish to receive commission-based compensation
  • Review Education Materials so firms do not cross the line into noncompliance

Here are a few other considerations mentioned by the panel:

Risk: Identifying and prioritizing risks such as financial, operational, regulatory, and reputation, is essential to ensure a successful implementation. Arguably, reputational risk tops the list for firms. As firms prepare for the April 2017 and January 2018 effective dates, clear and effective communication that conveys a firms’ value proposition is critical to building and maintaining trust with investors. A firm’s communication plan should address business practices and standards. As investors begin to hear more and more about the rule, they will look to the industry for information.

Many firms, like Thrivent Financial, have assembled teams of experts to manage the new requirements by collaborating with their various lines of business, working with key distributors, evaluating product changes, and determining what’s in the best interest of their clients. Essentially, asset managers need to determine if their product suite is appropriately aligned with intermediary business models once the new rule is implemented.

Best Interest Contract (BIC) Exemption: Advisors who accept commissions which are permitted under the rule, are required to have clients sign a best interest contract exemption, which indicates the advisor will act in their client’s best interests and only earn “reasonable” compensation. But, it has to pass the test…

Defining Reasonable Compensation: “Reasonable compensation” is a long held concept that aims to ensure compensation charges are reasonable based on what the investor receives; however, this term is continually said to be not really defined resulting in confusion and potentially a lack of uniformity. Keeping and maintaining good records is a paramount and essential going forward since it’s required under the DOL Fiduciary Rule. Firms have begun retaining audit firms to help them prove reasonable compensation.  Gavel on sounding block

Despite some positive changes with the final rule, such as pulling back on the amount of disclosures and removing clauses, which would require advisors to predict future returns, the industry has plenty to do, both from a review, assessment, and planning perspective.

Our enterprise sits at the intersection of the asset management, brokerage, distribution, insurance, and retirement markets, giving us the ability to consult with clients and deploy holistic solutions that help master the complexities across businesses. As you evaluate your business strategy and identify any expected changes needed for the April Rule implementation date, we encourage you to discuss your needs with us.

Do you need to ready your operations for the Fiduciary Rule? Turn to our enterprise for insight:

  • Our colleagues at DST kasina created a white paper that explores the sales, marketing, and product implications of the new rule, and offers additional strategic questions your firm might explore in order to differentiate yourself in the market.
  • In their post, “Clearing Through the Clutter…,” Craig Hollis, chief compliance officer at Boston Financial, and Nick Horvath, DST compliance officer, offer suggestions to help asset management firms begin taking action to ready their TA operations for the first DOL Fiduciary Rule, effective date April 2017.
  • For insight into the product and pricing changes that may materialize, and the steps asset managers should take to address those changes, read DST kasina’s paper on, “Product Implications of the Fiduciary Rule.”
Kim Froio

Kim Froio

With more than 25 years of transfer agency and shareholder servicing experience, Kim has been instrumental in delivering new products and services to help strengthen the position of asset managers. As Vice President of Enterprise Compliance Solutions, Kim has helped shape the compliance strategy and introduced a number of compliance solutions including Boston Financial’s 22c-2 solution, Unclaimed Property and State Inactivity Solicitation, and Blue Sky Administration. Kim was integral to the design and launch of Boston Financial’s E-Business practice and the deployment of the Boston Financial KnowledgeBaseTM. Kim, AKA “Mom” or “Coach,” treasures the moments she spends with her three children, Noah, Reese, and Mia, and husband, Paul. She is a member of the NICSA East Coast Regional Committee, and earned her degree from Aquinas College.


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