The DOL Rule's Fiduciary Impact? Nominal

Aug. 21, 2016 5:49 AM ET2 Comments
John Lohr profile picture
John Lohr


  • There is a lot of misunderstanding of the content and meaning of the rule. It's not that difficult.
  • Outside of disclosure, an advisor's business is unlikely to change much.
  • BDs and IA firms need to adopt and apply a process to comply, and it doesn't take hundreds of compliance officers to get there.

The most overused word in the financial industry is "fiduciary." Skip the technical jargon. In the area of investing it means "the ethical treatment of somebody else's money."

That said, what is all the noise about the DOL's new fiduciary rule? It's just that: noise. Noise is news today. What really changes for retirement plans and investors? Not much actually. For instance:

The financial industry: You will read a lot of chest-pumping hyperbole about how the rule "levels the playing field," is a "game changer," BDs will exit the rollover business, they will have to change their business models and annuities are dying. Not exactly.. The one thing the financial industry does best is to adapt quickly to new opportunities and landscapes by creating new products and touting them profusely. Look for it. (And look at the simple model Edward Jones just adopted. They hit the "easy" button.)

Plans and Plan Sponsors: Not much here either. Laws established in 1974 require that an investment person must be a fiduciary to provide advice to an employee benefit plan. There will be some more disclosures to read about compensation to the provider and fees and such. Also, there will be a renewed emphasis on providing investment education to participants, which is good. You might have a slightly more clear way to evaluate service providers. Otherwise, business as usual.

Plan participants and IRA investors: The fees you pay might go down, which is good. You should have an opportunity for actual investment education rather than just tear sheets on mutual funds, and that, too, is good. Basically the same investment lineup and options you had before will still be generally available. Maybe they have a slightly different wrapper, but still….

So, when the noise dies down the investment world goes on to other things and the lawyers find greener pastures, our world will still go on, pretty much as usual.

But how does the DOL rule change the business for advisors?

If you're at a large firm that has been in the fee business for years, don't worry, your firm has a handle on things. If you're at Ameriprise or LPL, they have banned selling A shares and prohibit 12-b-1 fees on fee-based advisory accounts (something some sophisticated firms have done years ago).

If you're an independent fee-based fiduciary advisor already, not much changes. Watch out for the market impact on fees as annuity fees and maybe commissions drop.

If you're a broker, you can still sell commissioned products to plans and participants. Sure, you might have to have a few more disclosures such as telling clients how much you actually make on the transaction. If you don't want to disclose your fees, maybe you should consider a sales job at Shoes R Us in Paintball, Arkansas.

Can you still sell an annuity to a 401(k) or IRA participant? Sure --justify and document that it's in the best interest of the client. Think process to deal with the BIC exemption.

Can you sell non-traded REITs or hedge funds to retirement accounts?Sure, virtually any product is fair game, but remember to be prudent (whatever that means).

Can you rollover a 401(k) account to an IRA because you will make more money on the IRA? Seriously? I'd like black Converse All Star High Tops, 9 1/2 W, please.

Does that mean the rollover business is dead? Not a chance. Our friends at Cerulli Associates remain optimistic that rollovers may offer more distribution flexibility.

Cerulli opined (as do we) that the next period will see a profound period of product and platform innovation at financial firms and providers:

Even before the DOL announcement, broker-dealers (BDs) with large advisor forces were adapting their businesses away from commission and proprietary products to fee-based, fiduciary business models. The industry may continue to see low-end consolidation of advisors and BDs not equipped to deal with sweeping regulatory changes, but in the long run, firms of scale will continue their business with relatively little disruption.

The requirements of the DOL's Conflict of Interest Rule will ultimately lead to evolution of products and platforms. Large BDs will use developing technology to serve smaller accounts on a flat-fee basis. Insurance companies will be forced to lower variable annuity expenses and commissions to be in line with other financial products.

The true impact of the DOL's Conflict of Interest Rule may not be immediately felt, but it will lead to a period of product and platform innovation at BDs and manufacturers. Cerulli Associates expects there will be unexpected changes to the retirement and wealth management industries and, to a degree, this cultural evolution is what the rule is hoping to effect.

Why, then, do we see all the hand wringing in the financial industry? What is happening is a fundamental lack of understanding by independent advisors of what the rule actually says, and a gaping lack of DOL guidance as to what in the world they mean. So the unrest in the "currently not a fiduciary" world is the most basic human fear: that of the unknown. Once the dust settles (if it ever does) it will be business as usual, only with more paperwork for slightly less money. One good thing, though: advisors and smaller firms that can't cope with the "best interest of the client" will gather in Paintball.

*We have all you need to know about the DOL Rule in 2 pages in "DOL Rule Abstract," the Edward Jones plan, comments on other BD/IAs, and a process development detailed plan on our website See the resources section.

This article was written by

John Lohr profile picture
JOHN LOHR John is widely regarded as a top legal expert on fiduciary responsibility relating to the investment management profession, John is a founding father of the investment management consultant's profession and has personally trained over 100,000 financial professionals. Additionally, he has counseled major Wall Street firms and associations in various aspects of managed account programs, and has trained and consulted to firms on corporate legal, compliance, fiduciary responsibilities and business development issues specific to the investment management industry. A former Banker and teacher and college adjunct, John started his securities representation in 1983, joining EF Hutton in 1987 where he served as the director of Portfolio Management Programs and General Counsel of the Consulting Group. Later, he started his own law firm, specializing in employee benefit, ERISA law and securities law. In 1995, he co-founded The Lockwood Group of companies, where he served as Chief General Counsel and Corporate Secretary, as well as President of Lockwood Financial Services, Inc. Upon retiring from Lockwood in 2002, John devoted his efforts to Howling Wolf Enterprises, a training company and a publisher of books and articles on Investment and Financial issues as well as fiction. In 2011 with partners known in the Investment management business he founded The Learning Network, whose mission is to improve Financial Literacy globally for financial professionals and investors. His current mission is The Ethical Treatment of Somebody Else’s Money, found at In 2010 the Money Management Institute designated him an "architect of the managed solutions industry" awarding him their Pioneer award for Lifetime Achievement in Wealth Management.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: WE are in the business of providing fiduciary solutions to investment firms at,, and The Learning Network.

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