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The 2016 Election and its Impact on the DOL Fiduciary Rule

December 26, 2016

The 2016 Presidential Election was a whirlwind, to say the least. Everyone on both sides came out of it wondering what our country's future looks like. Within these questions are concerns about the future of the retirement industry.

A majority of the recent debate has centered around President-elect Donald Trump and what his decision will be on the newly revised Department of Labor (DOL) Fiduciary Rule.

What is the DOL Fiduciary Rule?

In order to protect the interests of clients, The DOL's definition of a fiduciary does not allow advisors to conceal any information that could pose a conflict of interest, and states that all fees and commissions must be clearly disclosed in dollar form to clients. The definition has been expanded to include any professional making a recommendation or solicitation. In the past, only advisors who charge a service fee (either hourly or as a percentage of account holdings) on retirement plans were considered fiduciaries.

DOL Fiduciary Rule Updates

The DOL Fiduciary rule updates will begin to take effect in April 2017. At that point, all financial advisers will be required to recommend what is in the best interest of clients when they offer guidance on 401(k) plan assets, individual retirement accounts (IRAs) or other qualified monies saved for retirement.

The DOL updates will automatically elevate all financial professionals who work with retirement plans or provide retirement planning advice to the level of a fiduciary, bound legally and ethically to meet the standards of that status.

Thus, it is expected that those who work and rely heavily on IRA commissions, such as brokers and insurance agents, will be impacted the most. A survey found that nearly 64% of the nation's top retirement plan recordkeepers and providers believe that the new DOL fiduciary rule will help them to retain assets by deterring rollovers from retirement plans into individual retirement accounts (IRAs).

President-Elect Donald Trump

How does the most recent Presidential election affect the future of this rule?

One of two things could happen:

  1. The rule could be killed by Republican members of Congress who control both the Senate and the House; or
  2. The rule will become applicable in April 2017

Retirement industry experts are doubtful that the second of two scenarios will occur.

President-elect Trump has not spoken out on the subject, pending some of his advisers stating they intend to roll the DOL Fiduciary Rule back along with a number of other financial regulations. But, as President, Trump has more power by which to kill the fiduciary rule.

Anthony Scaramucci, managing partner of SkyBridge Capital, promised that Trump would rip up a Labor Department investment advice rule once he is sworn into office.

Fred Reisch, Partner/Chair of the Fiduciary Services ERISA Team at Drinker Biddle & Reath LLP, predicts that at the end of the day, "we will end up with a rule similar to the DOL’s fiduciary standard of care and that there will be modified exemptions that are based more on disclosures and less on prohibitions."

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