Years after its initial proposal, revisions and resubmissions, the Department of Labor has issued its final ruling on the expanded definition of fiduciary as part of a wider effort to eliminate conflicts of interest in the retirement-advice industry. After sifting through all the documents, conflicting testimony and rhetoric, the agency has now directed a vast swath of investment advisors, broker-dealers and other financial professionals to implement regulations that radically change established models for how retirement advice is distributed.
While the Department’s efforts to protect investors are commendable, its ruling fundamentally alters the investment advice and sales landscape and will likely impact financial professionals and individual investors in a variety of ways, some good and some bad. Some firms and advisors may be, unable to implement costly new compliance measures or service clients under new compensation regimes. Others will likely have no choice but to exit parts of their businesses because of new conflicts.
Consumers may see fewer retirement-investment options and service costs increase as advisors contend with additional compliance changes. Access to retirement-funding education will be modified as firms steer clear of activities that might look like advice.
So, after years of discourse, are we really better off with a rule that expands the definition of fiduciary and regulates more of the services of 401(k) and IRA providers?
Time will tell.
Yet, with the U.S. already facing a retirement crisis and a near-universal agreement that Americans need to take a more active role managing their retirement funds, now may be the right moment to implement changes and draw focus to the individual and advice.
Most Americans have relatively little understanding of financial markets or retirement-investing strategies. Maybe this can be the spark that ignites more change: change which encourages individuals to do more to better understand financial instruments and their financial health.
“Robo” advisors appear to be gaining traction across the financial-services landscape. And while many question the long-term effectiveness of automated retirement-savings solutions and consider these options “dumbed down” advisor recommendations, any products capable of prompting more Americans to save for retirement is a net positive.
And we know it will take time to get the advisor community in full compliance. An uncertain political landscape and a burgeoning cottage industry of Fiduciary Rule litigation will create additional uncertainty and possible further changes. And while considerable time and effort has gone into these regulations, will Americans really be any more prepared to make important financial decisions?
It’s too early to say.
So, what happens now? Time will tell.
Terry Dunne is Senior Vice President and Managing Director of Rollover Solutions Group at Millennium Trust Company. Mr. Dunne has over 35 years of extensive sales and marketing experience in the financial services industry.