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I am an Investment Adviser Representative at Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser (RIA) based in Fairfield, IA. I am also registered with Cambridge Investment Research, Inc., an independent broker-dealer with over 3,000 registered representatives nationwide.
Most clients pay fee-only or an hourly rate. The size and complexity of the client’s wealth management and financial and retirement planning determine that fee.
401k Advisor • Retirement Plan Fiduciary Advisor
Financial Advisor Tim Hayes Believes the DOL Got It Right
By striking a balance between new protections for consumers with additional burdens on the financial services industry, Financial Advisor Tim Hayes believes the Department of Labor (DOL) hit a home run with its new retirement advice rule.
Fixing the Law
By eliminating a 1975 rule, made when pension plans were much different than they are today, the Department of Labor rectifies the contradiction that financial advisors with conflicts of interest are providing financial advice to retirement accounts even though ERISA, the law governing these accounts, prohibits this from happening.
Read More: Can Financial Advisors be Independent?
What does the new rule mean for consumers? “If you have a 401(k) or 403b, the advisor fees might come down. If you roll over the 401(k) or 403b to an IRA, the fees in the IRA should be competitive to what they were in the 401(k).
DOL Fiduciary Rule Timeline & Updates
On July 7, 2020, the Department of Labor issued a final rule to close the circle, begun by the 2010 Fiduciary Rule and the new SEC best interest rule. The DOL rule brings back the five-point test to determine if an advisor is a fiduciary.
- The financial advisor must render advice as to the value of securities or other property;
- The financial advisor must do so regularly;
- The financial advisor must do so under an agreement with the client;
- That advice will serve as a primary basis for the client’s investment decisions; and
- The recommendation is to be based on the particular needs of the investment or retirement plan.
The DOL decided the rule will go into effect on February 16, 2021, and will publish related guidance soon.
It also withdrew guidance from the so-called Deseret Letter. The DOL had opined that rollover recommendations were not fiduciary investment advice in that guidance.
What to Do Now
Suppose you happen to administer a retirement plan for an employer: Ensure that any advisor compensation is aligned with the new interpretation from the DOL and the new rule from the SEC.
If you have an IRA and work with a financial advisor, now is an excellent time to review the financial planning arrangement, fee or commission, best interest, or fiduciary. Also, if you are thinking of rolling over a 401(k) or 403(b), ensure your decision is consistent with the new rule.
Previous DOL Fiduciary Rule Timeline
- March 15, 2018, the 5th Circuit Court of Appeals ruled that the Department of Labor overstepped its bounds in creating the so-called fiduciary rule, parts of which went into effect last year. In general, the rule required that advisors and brokers charge clients the same fee no matter their product — the so-called conflict of interest provision.
- On February 3, 2017, President Trump ordered a review of the Fiduciary Rule, putting its implementation in doubt. However, some financial services companies may decide to go forward with some of the changes anyway.
- In April 2016, U.S. Labor Secretary Thomas Perez announced the final version. The early assessment indicates a phased implementation. Some changes took effect in April 2017. Others on January 1, 2018.
- August 10-13, 2015, public hearings were held.
- On April 14, 2015, the DOL announced a re-proposal of the rule.
- In February 2015, President Obama announced that the DOL should move forward. However, following an uproar by numerous groups and Members of both parties of Congress, the DOL withdrew its first proposal.
- In 2010, the U.S. Department of Labor (DOL) proposed a change to the definition of who is a fiduciary.
These are the opinions of Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted on as individualized investment advice.