What You Need to Know About the Fiduciary Rule

A quick look at the changes coming for retirement accounts.

Rules are changing concerning investment professionals and retirement accounts. In the eyes of many, the change is good.

The “fiduciary rule” is in effect. This Department of Labor rule stipulates that any financial industry professional who makes investment recommendations to participants in qualified retirement plans in exchange for compensation will be considered a fiduciary.

What does all that mean? It means that if you have an IRA, a 401(k), a 403(b), or any other type of qualified retirement plan account, any financial professional advising you must automatically assume a fiduciary duty. He or she must always act in your best interest.1

Why is this rule being introduced and fully implemented by January 1, 2018? The DoL sees it as a way to limit the potential for conflicts of interest entering relationships between financial professionals and investors – particularly, conflicts of interest that could relate to a possible commission from an investment transaction.

Decades ago, financial services industry professionals were paid wholly or primarily through trading commissions or sales commissions. Today, things are different. Fee-based financial and retirement planning practices are now numerous. There are even fee-only financial services businesses.

The whole industry has been shifting toward a new compensation model, in which financial services industry professionals earn some (or all) of their income from fees. The new DoL fiduciary rule may further promote this trend.

The new DoL fiduciary rule says that if you have money in an IRA, and you want investment advice, investment evaluations, or investment management recommendations, one of the following two agreements must be in place by January 1, 2018:

*A written agreement to a fee-based advisory relationship with a financial professional.

*A Best Interest Contract (BIC), which states that you and the broker-dealer firm facilitating the buying and selling of securities held within your account have agreed to a commission-based fee structure related to such transactions. (Financial professionals who receive primarily commissions rather than fees commit to acting as a fiduciary for their clients through this contract.) The BIC directs you to a disclosure website where the costs of the advice offered and the potential conflicts of interest in the advisory relationship are noted.2,3

Participants in 401(k)s, 403(b)s, and other types of employer-sponsored retirement plans will not be presented with contracts, but they will be made aware of disclosures that reference the potential for conflicts of interest.2

While many financial industry professionals already work by a suitability standard, the DoL is encouraging widespread adoption of the fiduciary standard with this new rule.

The new fiduciary rule will not impact the value of your IRA or retirement plan account. It may impact the financial professional you have a relationship with, however. Your representative may already have a fee-based (or fee-only) compensation structure in place; he or she may inform you of a transition to a fee-based business model; or, he or she may tell you that commissions will still be part of his or her compensation.

The fiduciary rule has come to the forefront of the discussion about retirement planning and retirement saving. In the eyes of many, its adoption and implementation are a good thing.


1 – tinyurl.com/ybkb7hhc [5/23/17]
2 – dol.gov/ebsa/faqs/faq-conflict-of-interest.html [6/6/17]
3 – wealthmanagement.com/regulation-compliance/final-dol-fiduciary-rules-glance [4/6/16]

This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This material was prepared by MarketingLibrary.Net Inc., for Mark Lund, Mark is known as a Wealth Advisor, The 401k Advisor, Investor Coach, The Financial Advisor, The Financial Planner and author of The Effective Investor. Mark offers investment advisory services through Stonecreek Wealth Advisors, Inc. an independent, fee-only, Registered Investment Advisor firm providing investment and retirement planning for individuals and 401k consulting for small businesses. Stonecreek is located in Salt Lake City, Murray City, West Jordan City, Sandy City, Draper City, South Jordan City, Provo City, Orem City, Lehi City, Highland City, Alpine City, and American Fork City in Utah.