With the industry at about the halfway point between release of the Labor Department's fiduciary rule and implementation of the regulation in April 2017, most firms are
still trying to make heads or tails of their specific approaches to compliance.
Once executives at broker-dealers and registered investment advisers make those determinations, however, there's still the important step of educating and training one's respective adviser forces on fiduciary responsibility and the nitty-gritty of the rule.
And third parties are beginning to step in to fill that void.
The American College of Financial Services and fi360, a fiduciary consulting firm, already have programs in place. The Pension Resource Institute, and partner organizations such as
Morningstar Inc. and the American Retirement Association, and The Wagner Law Group and technology provider FRA PlanTools, are working to debut rule-specific programs in the coming months.
Limra, an insurance industry group, also announced last week it's debuting a DOL-fiduciary-rule training course sometime this fall.
“This won't be what companies focus on Day One,” Jamie Hopkins, a professor in The American College's retirement income program, said.
Companies will first emphasize their specific approach, technology and documentation, and the next step is asking how firms will educate their adviser forces on what it means to be a fiduciary, Mr. Hopkins said.
The DOL regulation bestows fiduciary status on those providing investment advice for a fee in retirement accounts such as 401(k)s and IRAs. Brokers today are held to a less-stringent standard of suitability.
(More: The most up-to-date information on the DOL fiduciary rule)
As such, thousands of investment-advice intermediaries will be held to the higher standard, which will be completely new to them. Even investment advisers, who hold fiduciary status under Securities and Exchange Commission rules, will need to understand what it means to be a fiduciary under the Employee Retirement Income Security Act of 1974.
“A lot of advisers didn't have to worry about being an ERISA fiduciary. They may have been a fiduciary under the '40 Act, but that's a different set of responsibilities,” said Douglas Wilburn, chief compliance officer at ValMark Securities Inc., an independent broker-dealer. “I think it makes sense for firms to train people on what it means to be an ERISA fiduciary and the obligations that come along with that. That's new for a lot of people.”
Aside from education on being an ERISA fiduciary, many of the programs are structured to teach about specific aspects of the DOL rule, such as its available exemptions and best practices around areas like IRA rollovers, which many consider to be a business practice
most impacted by the DOL rule.
The American College launched its program first, in June, and fi360 unveiled its on Sept. 19. Broker-dealers and RIAs can leverage the programs across their adviser forces, to be able to provide a baseline level of education and training.
“Within the rule there's a need to be able to demonstrate that, from an institutional perspective, you're training and educating your reps in order to abide by the requirements of the rule,” said Michael Muirhead, fi360's senior vice president of learning and development.
For example, as text in the
best-interest contract exemption portion of the rule
says, “Financial Institutions generally must adopt policies and procedures reasonably designed to mitigate any harmful impact of conflicts of interest.”
Education and training programs may be one way firms seek to address such a requirement, Andrew Oringer, partner and co-chair of the employee benefits and executive compensation group at Dechert, said.
“As a practical matter, I'd think a program like that would be extremely helpful, even in the case of a violation,” added Mr. Oringer, who explained that attorneys may be more motivated to pursue legal action against firms they know aren't making much of an effort to comply with the rule as opposed to those that are.
Alison Douglass, a partner in the financial industry and ERISA litigation practice at Goodwin Procter, said establishing such firm-wide programs could play into a court's thinking in any future litigation that arises.
“You can't avoid conflicts without understanding how to recognize them," Mr. Wilburn said.
Of course, firms could choose to build out education and training internally rather than turn to third parties. The ones more likely to do this are larger firms with more resources to devote, experts said.
Amy Lynch, president and founder of FrontLine Compliance, a consultancy to advisory firms, cautioned that, although firms should do broad-scale training, they must ensure they customize training to them.
“Firm A and B could very well have different training, because they'll have different ways they've approached it,” Ms. Lynch said. “There's no one-size-fits-all answer to this.”
That's why most of the programs, in addition to general fiduciary and rule training, allow for tweaking on a per-firm basis.
For example, the FRA PlanTools-Wagner Law Group program — in which the law firm provides content, and FRA PlanTools the tech support — will allow broker-dealers and RIAs to create a series of training videos on how the firm is interpreting the rule, and/or for sales techniques instituted for certain products, if they wish, according to Thomas Clark Jr., attorney at The Wagner Law Group.
