DOL Fiduciary Rule: Part I

by David Cosgrove

After much nail-biting by many in the industry, the Department of Labor (DOL) recently released its anticipated and long-awaited final fiduciary rule, which it touts as the fulfillment of its mission to protect the retirement of investors through education and empowerment.[i] In this first installment of a multi-part series, we take a quick look at the rule responsible for making waves in the American financial sector.

The rule is the culmination of a multi-year project to modernize the Employee Retirement Income Security Act (ERISA) of 1974, in response to the growth of unregulated market products. The consequence of this growth has been an array of investment professionals who could advise in the direction of their own personal gain over the best interests of their clients, so long as the recommendation was “suitable;” unacceptable behavior for fiduciaries.[ii]

The DOL rule expands the scope of those who qualify as “fiduciaries,” such as those related to individual retirement accounts or IRAs. “Any advisor who makes investment recommendations …in exchange for compensation will be considered a fiduciary (and)…are legally required to recommend investments that are in their client’s best interest, not their own.”[iii] According to the White House, the conflicts of interest that exist when the client’s needs do not take precedent cost American families an estimated $17 billion a year.[iv] In the same manner, another goal of the rule was to curb billions of dollars currently being lost by investors in fees paid when transferring money out of 401ks and into IRAs.[v]

Some don’t consider this the fail-safe that the government is touting it to be. Situations in which conflicts are present, such as with mutual fund families and broker-dealers, will still continue to operate, only with the additional “Best Interest Contract Exemption” (BICE) disclosure.[vi] As one author surmised, “Just picture the speed with which you click ‘Agree’ everytime (sic) iTunes does a software update, and you can imagine how little of an impediment this sort of thing represents.”[vii]

The former head of the DOL’s Employee Benefits Security Administration, Brad Campbell, considers BICE to represent the most significant issue in the rule. “’There are frivolous litigation risks and liability risks in the BICE that still remain, and that are going to increase costs for small businesses where advisors are willing to use the BICE exemption at all.’”[viii] There are others who have expressed concerns regarding the DOL rule, including the Securities and Exchange Commission, the insurance and securities industries, as well as politicians, which shall be discussed in future postings.

Still, many in the government feel the rule is a victory. Department of Labor Secretary Tom Perez expressed that putting the client first is, “now the law,”[ix] while Senator Elizabeth Warren (D., Mass) proclaimed the rule a day in which the government was working, “for the people.” [x] This is assuming, of course, the next administration doesn’t kill it altogether before the final 2018 implementation deadline.


[i] United States Department of Labor. (2016, April 13) Department of Labor Finalizes Rule to Address Conflicts of Interest in Retirement Advice, Saving Middle-Class Families Billions of Dollars Every Year [Electronic format]. Retrieved from

[ii] Ibid.

[iii] Brandon, E. (2016, April 8) The New Retirement Account Fiduciary Standard [Electronic format]. Retrieved from

[iv] The White House. (2016, April 13) Fact Sheet: Middle Class Economics: Strengthening Retirement Security by Cracking Down on Conflicts of Interest in Retirement Savings [Electronic format]. Retrieved from

[v] Hayashi Y. & Prior A. (2016, April 6) U.S. Unveils Retirement-Savings Revamp, but With a Few Concessions to Industry [Electronic format]. Retrieved from

[vi] Brown, J. (2016, April 6) Wall Street Dodged a Bullet on the Retirement Fiduciary Rule [Electronic format]. Retrieved from

[vii] (Brown, J., 2016, April 6)

[viii] Campbell, B. (2016, April 11) DOL Fiduciary Rule: The Good, the Bad and the Ugly [Electronic format]. Retrieved from

[ix] (Ebeling, A., 2016, April 7)

[x] (Hayashi Y. & Prior A., 2016, April 6)