In 1974 Congress enacted the Employee Retirement Income Security Act (ERISA). Since then the Department of Labor has worked towards protecting America’s retirement savings through fiduciary standards. 41 years ago there were no 401(k) plans- they didn’t come out until the early 80’s. Before 401(k) plans more employees participated in pension and retirement plans provided by their employer.

Since then the retirement landscape has changed drastically. There has been a shift from employer-sponsored plans to participated-directed 401(k) plans, as well as extensive growth in assets in Individual Retirement Accounts and Annuities (IRAs). When the rules governing retirement advice were drawn 41 years ago, 401(k) plans didn’t exist and IRAs had just been authorized. In other words, these rules haven’t been touched since 1975.

Because the retirement landscape has changed so much, the importance of trustworthy and sound advice has increased for American workers and families. Under current law, many investment professionals operate under compensation that isn’t always affiliated with their customer’s best interest in mind. They are able to do so under FINRA’s Suitability rule. According to FINRA, when a broker recommends that you buy or sell a particular security, your broker must have a reasonable basis for believing that the recommendation is suitable for you at the time of the transaction. Broker’s are not necessarily held responsible after a purchase, leaving room for conflicts of interest and harms including the loss of billions of dollars a year for retirement investors. Commission based products tend to be very confusing to the consumer and chip away at their retirement through internal and recurring fees.

In 2009, the Department of Labor launched a project to address these problems in hopes to reduce conflicts of interest in investment advice. The DOL published two separate proposals in 2010 and 2015 for public comment. The department held multi-day public hearings and heard from hundreds of individuals including consumer groups, plan sponsors, financial services companies, academics, elected government officials, trade and industry associations, and more expressing their concerns, support, and disagreements of the fiduciary proposal.

Many industry related professionals strongly oppose the fiduciary rule, particularly brokers and those that receive commissions on products they sale. Common arguments claimed that the rule is too restrictive and would cost the industry billions of dollars, putting many out of business. Many fee-only and fee-based professionals support the fiduciary ruling, along with the middle class.

Finally, after years of debate the department is adopting a final fiduciary rule and setting forth final exemptions. In summary, the rule is requiring that anyone that works with retirement accounts acts as a fiduciary if they’re providing investment advice. Those that provide investment advice must avoid payments that create conflicts of interest or comply with protective terms. If that producer is to receive commissions from products they recommend to customers then it must be fully disclosed in a B-I-C-E, Best Interest Contract Exemption, and signed by all participating parties.

Compliance for the new rule will not be required until one year after the final rule is published in the Federal Register, April 2017. The Department has determined that one year provides adequate time for adjustments to plans and change from a suitability standard to a fiduciary status. In other words, professionals that provide investment advice have one year to declare themselves a fiduciary with the SEC. FULL compliance with the exemption won’t be required until January 1, 2018.

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