Advisors: DOL Rule Black And White With A Streak Of Gray

Financial advisors attending The Financial Planning Association of New York’s spring forum view the new Department of Labor's new fiduciary rule as aligned with what they are already doing.

Advisors said they are already beholden to the standard and the process is likely to fit into their compliance system.

“I have a fabulous broker dealer who makes sure I am in compliance at all times and I carry errors and omissions insurance,” said Sallie Mullins Thompson, a certified financial planner in New York.

The 20-year financial advisory veteran added that she’s already a fiduciary because she is an investment advisory representative. “A lot of the investments I do for my clients are in managed accounts,” Thompson said.

Registered Investment Advisors (RIA) have been held to the higher standard of fiduciary since 1940 when the Investment Advisors Act was enacted, which means an advisor has a fundamental obligation to act in the best interests of his or her clients and to provide investment advice in the clients’ best interests.

The DOL rule now imposes fiduciary status on advisors however there are still some gray areas. For example, the American Retirement Association has said it expects the rule to prevent RIAs from handling rollovers. However, under a Qualified Domestic Relations Order (QDRO) acquired during divorce proceedings, the fiduciary rule’s relevance is questionable, according to Michelle Smith, a financial advisor in New York who specializes in divorce planning.

“I get IRA rollover business from a transfer incident to a divorce but it’s much different than me recommending a rollover from a 401k,” said Smith. “I don’t need to document why it was a good idea.”

Typically, a QDRO is used to transfer a portion of a spouse’s retirement plan to an IRA in the ex-partner’s name but when a rollover occurs by incident of divorce, Smith feels she’s not subject to the new rules even though she may establish custodial accounts.

“I would have the reporting requirements if I set up the custodial accounts for them but it’s a little nuanced because it’s not an option,” Smith told Advisor News. “It has to happen.”

A certified financial planner who is also a fiduciary with Blue Ocean Global Wealth in the Washington, D.C. area, Marguerita M. Cheng is dually registered and feels minimally affected as well.
“Financial planning is the foundation of every client relationship so we uphold the standard,” Cheng said.

But the mother of two has noticed a change in client conversations because the topic has been in the news. “They ask if we are fiduciary advisors because they are more aware of what it means,” Cheng said. “They are more equipped and prepared to ask these questions than in the past.”
The fiduciary rule will take full effect in the next 12 to 18 months.

Juliette Fairley is a business and finance journalist who has written four personal finance books for John Wiley & Sons and has written for major news organizations, such as The New York Times and The Wall Street Journal. She is a member of the American Society of Journalists and the New York Financial Writers Association and a graduate of Columbia University's Graduate School of Journalism. Juliette can be reached at [email protected].

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