If you are still unaware of the Department of Labor (DOL) ruling that was announced a few months ago, now is the time to get to grips with it. Although the rule will not be fully implemented until 2018, there will be a gradual rollout starting from 2017, and thus it is important to make sure that your financial advisory firm is prepared. Keeping that in mind, in this post we are going to give you a full overview of the new government rule, which sees investors come first, so that you are fully aware of what this means for your business.
What’s taken so long?
The new DOL ruling was actually first proposed in 2010, and it imposes new fiduciary obligations regarding financial advisors and individual retirement accounts. The reason why it has taken so long for the new law to be imposed is because the two earlier proposals were not workable, and far too complicated.
Considering that there is more than $10 trillion worth of assets held in retirement accounts that come under this new rule, it is not hard to see that this is going to have a big impact on the industry. In basic terms, the government has taken this step to make sure that financial advisory practices put their clients’ needs first and that they always act in their best interest.
Who will benefit?
Thomas Perez, the Secretary of Labor, revealed that this is a massive win for the middle class. He states that while there are a lot of firms that claim they put the interests of their clients first, this is now law – not just an advertising slogan. He also believes that the industry should have no trouble complying with the new rules. The changes that are being enforced reduce disclosure requirements on advisors while also making it easier to draft the new best-interests contracts, and thus there are advantages for financial advisory firms as well.
As mentioned, there is going to be a gradual rollout of this law, which will come into full effect at the start of 2018. It marks the first big change in four decades to the Employee Retirement Income Security Act law, and, as you may have guessed, there has been a lot of resistance to it. Businesses in the asset management and brokerage sector have expressed their intense opposition to the new rule, but their opinion won’t matter, as the law is set to go ahead.
Only the beginning?
Despite the fact that the new rule does not apply to all investments – only tax-advantaged retirement accounts – a lot of industry experts believe that this is only going to be the beginning of sweeping changes that will impact the financial services sector. In an attempt to protect the public from firms that deliberately mislead them, the government may be tempted to implement similar rules across all types of investments once this law has been properly enforced.
Hopefully, you now have a better understanding of the new DOL ruling. You can find full copies of the law online, and it’s advisable to read this thoroughly to ensure your business is compliant.