After six years of deliberation, the U.S. Department of Labor last month released its much-anticipated conflict of interest rule for retirement plan advisors. Weighing in at 1,023 pages across seven regulatory releases, it’s far from easy reading. 

But read it we must, and so we at TD Ameritrade are reviewing and analyzing the rule to determine what it may mean for investors and advisors. Though we’ve only just begun, we believe the new rule represents the most important, far-reaching and impactful regulatory change to the retirement advice arena in decades.

In its final rule, it appears the DOL recognized that the registered investment advisor business model has fewer conflicts than that of full-service brokers and insurers, thus it imposed a lighter compliance burden in some areas. And the department allows that some retirement investors may be better served by a commissioned broker. 

So rather than restricting that channel, the department created a “best interest contract exemption” that lets advisors receiving commissions or third-party compensation continue doing business with retirement plans and IRAs—albeit under strict fiduciary rules.

Now, a column like this cannot in any way substitute for individual compliance guidance, and we are not predicting what the impact of the rule will be on any given advisory firm, because every firm is different. Still, as we are working through the rule and its application, we thought it might be helpful to highlight a few potential questions for RIAs to consider.

1. IRA rollover advice. The new rules apply a “best interest” standard to any advice given to a retirement plan participant considering a rollover into an IRA. In light of their business model, RIAs have been given a lighter compliance burden in this area because they generally are eligible to be level-fee fiduciaries under the best interest contract exemption. But they still need to adapt their business practices to comply with the rule. 

RIAs may want to ask themselves: “How might my business practices need to change for me to comply with the rule, and to continue differentiating my firm from competing advice providers?”

2. Various revenue streams. ERISA does not allow for third-party compensation, such as commissions, to be received by fiduciaries from retirement plans. This now extends to IRAs. Does your firm have any revenue streams from third parties—product manufacturers, custodians, etc.—that might need to be modified or even terminated?

3. Reasonable compensation. Under ERISA, any compensation for services must be “reasonable” in relation to the services provided. How will you know if a fee will be considered reasonable under this new rule? Consider how you will justify your fee when recommending an IRA rollover from a retirement plan. The best interest contract exemption mandates that you document this justification, among other things.