Financial Planning

Early Responses To The Finalized Fiduciary Rule

4/26/16 8:00 AM

iStock_000006080713_Small-2.jpgEarlier this month, the final version of the Department of Labor’s fiduciary (or “conflict of interest”) rule was unveiled. A recent Goldman Sachs analysis suggests that much of the impact from the new fiduciary regulation will be felt by the $7.3 trillion IRA market. Around $5 trillion of that total, though, should not be affected by the finalized rule because the money was "already subject to the fiduciary rule or in self-directed accounts that do not use a financial advisor’s recommendations." A survey of professionals in the financial industry conducted by the National Association of Plan Advisors (NAPA) soon after the release of the finalized regulation found that a 42 percent plurality of respondents believe that it is still “too soon to tell” what the ultimate impact of the new fiduciary rule will be. 

Nearly a quarter (24 percent) of surveyed professionals say that the updated regulation is “better than the [initial] 2015 proposal,” and 19 percent are confident that they can work with the new rules. Seven percent of respondents still fear that the finalized conflict of interest regulation will “keep a lot of people from getting the advice they need/want,” and many others remain unsure and believe that the effects will not truly be known until the industry actually starts following the new rules in 2017. A similar (mixed) sentiment was expressed by Richard Ketchum, CEO of the Financial Industry Regulatory Authority (FINRA), who described to the Labor Department’s final fiduciary rule as being “much better” than the initial proposal, but stressed that “additional guidance is needed as to the ‘differential compensation’ allowed for advisors under the rule and how such compensation ‘will work in reality.’”

On the other hand, Brad Campbell, former head of the Labor Department's Employee Benefits Security Administration (EBSA), said that new rule to amend the fiduciary definition is "legislation by rulemaking," and that it “'ultimately passed' running contrary to what Congress intended when it passed the Employee Retirement Income Security Act (ERISA)." As for the overall defined contribution industry, early responses to the updated fiduciary rule appear to be favorable, and some executives in this arena even see opportunity in the disruption that could result from the new regulation. However, staunch opposition to the conflict of interest rule has not gone away, and a group of lawmakers in the House Education and Workforce Committee have already introduced a resolution that would use the Congressional Review Act to block the Labor Department’s finalized rule. Such an approach to derail the new regulation is also being pursued in the Senate.



Sources: U.S. DoL, NAPA, ThinkAdvisor, P&I Online, Investor's Business Daily

Post author: Charles Couch