Every day in 2016, I saw an article in our trade press speculating about what the Department Of Labor’s final rule on fiduciaries and retirement plans would look like. Finally, the wait is over and the rule is in place. But the speculation has not ceased. It has merely redirected its focus.

The most popular topic now seems to be how the rule will be challenged. As various industry groups begin to sue, people wonder if they can stop the new regulations or at least alter them.

Also, how will the rule fare once the new president takes office? Unsurprisingly, some in Congress have already proposed legislation to halt the DOL’s implementation, though these measures are unlikely to pass under the current administration.

Otherwise, the question is, “What will advisors have to do now?” Recently, I was subjected to a slew of theories at conferences.

At one panel, somebody said, “Look people. With the DOL rule, if you aren’t recommending LTC policies, you are asking for trouble.”

I thought that a bit odd. The DOL rule applies to the advice, or lack thereof, applied to retirement accounts and IRAs. LTC issues are handled under completely different standards, regulations and jurisdictions.

I expect product-sponsored speakers to extol the virtues of their products, so I didn’t take much from the comment other than that the speaker had shifted from educator to promoter. He lost some credibility with me for that shift, but I was happy for the good information he had shared and only rolled my eyes a little bit (since innovations in long-term-care insurance are otherwise encouraging).

A day later, I sat in on a program about retirement income delivered by an academic who is a fan of immediate annuities. That is fairly common in the academic community. The presentation was sound and all was well.

Then the speaker said, “If you aren’t recommending immediate annuities, you are going to have issues.”

At another conference, I was listening to a speaker about reverse mortgages and, yep, you guessed it: If we aren’t recommending to people that they set up a reverse mortgage line of credit at the very least, the DOL will be after us. 

By this time, the eye roll was substantial.

In just about every session, the DOL rule was cited as a reason to do some things and not do others. In a couple of the talks, the speakers had scared the audience so badly I thought a couple of people might be drafting their resignation letters on their tablets in the lobby right after the sessions. 

Don’t let speakers, home office people or industry lobby groups work you into a frenzy. If you are getting uptight about this, please take a deep breath and try to relax. The rule won’t be that onerous for a lot of readers of Financial Advisor.

Surely, there are some potential pain points. If you intend to rely on the full best-interest contract exemption (BICE) to accommodate commission income, for instance, there is some work to do. It seems reasonable to me that your home office will gripe about the BICE, but the type of mandates and doom I described from the recent conferences really should not be a source of great stress.

Here are a couple of things to keep in mind about the DOL and fiduciary responsibility. 

First, cost is a consideration, but not the central issue. In cases where a client will be paying more by working with you than without you, that is not itself a breach of the rule or a violation of fiduciary duty.

This is easily confusing since so many of the academic arguments for the rule were based on costs. Fiduciary precedent is clear that, all other things being equal, additional costs could be a problem. But that doesn’t mean clients automatically pay you less to keep you compliant.

The DOL rule calls for reasonable compensation. Your time, expertise and potential liability are all things to be compensated. Lawyers are fiduciaries, and as we all know they get paid. Many get paid very well. High-priced attorneys do not fail to meet their fiduciary duty just because they charged more than other lawyers, and the cheapest lawyers aren’t automatically deemed to have met their fiduciary duties just because they charged less.

Second, losing a case is not itself a failure of a lawyer to meet fiduciary duties. The lawyer is judged according to conduct. How did he behave? Did he follow a sound process with adequate diligence?

It will be similar for financial advisors. If you have a decent process and follow it adequately, you are not expected to forecast or time the market. When markets dive, complaints rise. That has happened forever and is not some new condition brought about by the DOL rule. If anything, the DOL rule can help you if you take it to heart, implement good procedures and put the client first. 

Third, the rule in no way mandates the use of any particular products. The speakers I mentioned suggested that not recommending a particular product was a violation. That assertion is rubbish.

Fourth, neither the DOL nor an army of private sector lawyers are licking their chops to come after you for failing to dot an “i” or cross a “t.” The DOL’s priority in establishing this rule is to try to reduce the effect on the public of some compensation schemes and curtail some egregious sales behavior.

Don’t get me wrong. I’s need to be dotted and t’s need to be crossed. And yes—I know, I know—in America, you don’t necessarily need a good case to sue, you just need a willing lawyer. Nonetheless, I do not see a lot of lawyers lining up to go after someone because they recommended a 401(k) be rolled into a run-of-the-mill 60/40 portfolio instead of a 50/50 allocation.

The greed often attached to the legal profession is actually something that prevents super picky, technicality-based complaints from getting very far. The lawyer wants to get paid, and to do that he needs clients that have suffered real harm. The greater the harm, the greater the chance of being compensated. The difference between 60/40 and 50/50 doesn’t cause great harm. Putting a chunk of those funds into something highly speculative might. Basing the recommendation on little more than your whim might. Here again, this is how it has always been, and it’s not a new condition stemming from the DOL rule.

I’m not trying to minimize the impact of the rule. It will be significant in the aggregate, and advisors of all types will need to adjust. How big an adjustment will depend on your current business practices. But here is the rub: What is expected from the rule is in large part what makes for good business practices anyway. If you already use a process that puts the client’s interest first, documents your recommendations well, makes transparent your reasonable compensation, avoids conflicts of interest and manages unavoidable conflicts in the client’s favor, it won’t be difficult because it is not that different.


Dan Moisand, CFP, practices in Melbourne, Fla. You can reach him at www.moisandfitzgerald.com.