In what is expected to be a significant game-changer in the retirement industry, the Department of Labor (DOL) unveiled its fiduciary rule this week. Certain elements of the final rule, including the “Best Interest Contract Exemption,” were modified after last year’s public comment period elicited more than 3,000 submissions.
In addition to scaling back reporting requirements for certain items, the DOL is proposing a phased implementation that gives the industry more time to fully comply with the rule.
Still, the final version is being scrutinized by stakeholders for clarity on its impact on the retirement industry, and in particular, the individual retirement account (IRA) segment. IRAs represent about 30% of total retirement assets, and, in 2015, the Investment Company Institute estimated IRA assets totaled $7.3 trillion, surpassing the $6.8 trillion in defined contribution plans.
The broader definition of fiduciary will take effect on April 10, 2017, and for advisors seeking a best interest contract exemption, there will be limited requirements. Additional requirements for the exemption will go into full effect January 1, 2018.
Here are some of the highlights of the DOL rule proposal and the final outcome:
The fiduciary rule marks the first major change to the basic rules governing retirement investment advice since 1975, the DOL noted.
In its statement, the Administration noted in response to the comments, the final rule has been streamlined “to minimize the compliance burden and ensure ongoing access to advice, while maintaining an enforceable best interest standard that protects savers.”
Critics argued that the rule is complex and creates cost and compliance burdens for the advisor, and ultimately would have the unintended consequence of limiting access to advice for many savers.
The rule may experience challenges
Since the proposal was introduced in April 2015, numerous bills were launched in both the House and Senate pushing for a congressional solution to the rulemaking.
For informational purposes only. Not an investment recommendation.
This information is not meant as tax or legal advice. Please consult with the appropriate tax or legal professional regarding your particular circumstances before making any investment decisions. Putnam does not provide tax or legal advice.