Advisory firms should prep for DOL fiduciary rule while court challenges proceed

Advisers need to begin taking steps to abide by requirements of the 1,023-page DOL fiduciary rule due to be implemented by April 2017, even though the entire rule, or just part of it, could be thrown out by the courts. That was the conclusion of a securities industry panel speaking at the Pershing Insite conference in Orlando on Tuesday.
“Now is the time to do a thorough inventory of clients, going account by account,” said Dale Brown, chief executive of the Financial Services Institute. “You need to end up with a clear understanding of which client accounts will be impacted by this rule.”
FSI and other professional groups representing the brokerage and insurance industries filed a lawsuit last week week to vacate the Labor Department’s rule requiring all retirement advice be delivered in the best interests of clients. The legal challenge seeks to stop the DOL from implementing and enforcing the rule.
But getting an answer to their request to overturn the rule is likely to take nine months to a year or more, Mr. Brown said. Therefore, advisers and broker-dealers need to stay focused on getting ready to comply with it.
“If your broker-dealer isn’t talking with you about potential solutions, you should start asking questions,” Mr. Brown said.
The breadth of the business changes the rule will require of advisers depends on their business model — most importantly, how they are compensated for providing advice on retirement assets. But all types of firms will need to make some changes. RIA advisers, who already follow a best-interests standard of care with clients, will have less to modify than brokers, who currently are required only to recommend suitable investments to clients.
After assessing the impact the rule will have on their firm and making some business decisions, companies will need to begin making client-level decisions, if they are going to be ready for the April implementation deadline, Mr. Brown said.
Industry groups already have started supplying guidance for members.
FSI last week began selling on its website a template for a best-interest contract exemption, or BICE, as well as an overall compliance guide on the rule.
The Insured Retirement Institute, another party to the lawsuit to stop the Labor Department’s rule, also is working on creating a standardized BICE. In addition, it is crafting a compensation survey to offer guidance on what is considered “reasonable,” said Cathy Weatherford, chief executive of IRI.
The DOL fiduciary rule requires advisers who accept commissions to have clients sign a BICE that pledges he or she will only earn “reasonable” compensation. The exemption also must disclose information about fees and conflicts of interest.
(More: Coverage of the DOL rule from every angle)
The DOL may issue further guidance on some of the gray areas, but even that will take a while, said Lisa Bleier, associate general counsel to the Securities Industry and Financial Markets Association. SIFMA also is a party to the lawsuit.
By the time that guidance comes out advisers will need to be “pretty far down the path in the direction you are going to take,” she said.
Ms. Bleier said the lawsuit filed last week could invalidate the whole rule, or just pieces of it. There are at least seven areas of the regulation that the suit targets as credible grounds for challenging the rule, she said.
For instance, the court could decide to strike the portion that allows clients to sue their advisers in court if they believe their interests haven’t come first.
“Something like that would not invalidate all that you have done to put systems in place to meet the rule,” she said.