Myth No. 2: The DOL rule will only impact certain retirement assets.
Though any non-qualified accounts, like normal brokerage accounts, are exempt from the rule even if they are intended for retirement, any qualified retirement account is impacted by the rule. This includes traditional IRAs, Roth IRAs and 401(k)s — but not 403(b)s.
“Broker-dealers and advisors are already starting to react here,” Matrisian says. “They’re going ahead and treating non-qualified accounts similar to the way they’re going to be required to treat qualified accounts. Some aren’t allowing for direct mutual fund business anymore, and they’re seeking consistency in compensation and share class moving forward. The burden of having different supervisory and compliance responsibilities across different types of accounts is just too difficult.”
Myth No. 3: An RIA is already a fiduciary, thus the DOL rule will not impact them.
While RIAs are already bound by the fiduciary standard as mandated in the Advisers’ Act, the DOL rule applies the more stringent ERISA fiduciary standard to retirement advice.
“Under the rule, fee-based advisors deriving compensation directly from their clients don’t have the same conflicts of interest, but they’re still bound by the disclosure requirements,” Matrisian says. “That disclosure will not be in the form of a contract, it’s going to be more easily delivered to the client and will have fewer rules and regulations associated with it, but RIAs will still have to adjust.”
In fact, the DOL rule has major consequences for advisors with IRA rollover and managed accounts businesses. Many advisors, however, seem unaware that they’re going to fall under a more restrictive standard for advice, which has led to AssetMark’s fourth myth.
Myth No. 4: Merely disclosing a conflict of interest puts advisors in compliance with the rule.
AssetMark says that a major difference between the Advisers’ Act fiduciary standard and the ERISA fiduciary standard is their treatment of conflicts of interest. Per the Advisers’ Act language, conflicts can be remedied via appropriate disclosure, while the ERISA standard requires that conflicts be eliminated entirely. The DOL did provide some relief for conflicts of interest via the Best Interest Contract (BIC) exemption.
“The Best Interest Contract is not only about disclosure, but a higher level of responsibility,” Matrisian says. “It’s to ensure that whatever their recommending is in the best interest of the client. While the standard of care was formerly around suitability alone, now advisors will also have to ensure that whatever they recommend, especially from a cost perspective, is to their knowledge what is best for the client.”