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 The rule, requiring broker-dealers who provide advice to follow a
"fiduciary standard," will take full effect on Jan. 1, 2018,
according to the Labor Department.
The rule aims to end potential conflicts of interest by brokers who
advise on individual retirement accounts and to protect consumers
from buying unnecessary investment products.
Under the rule, brokers would have to act in clients' best interests
when advising about IRAs. Industry rules have long required brokers
to recommend investments that are "suitable," based on factors such
as an investor's age and risk tolerance. But brokers can receive
significant fees when clients "roll over" assets from
employer-sponsored retirement plans into IRAs.
The Labor Department, which regulates retirement plan advice,
withdrew its initial proposal for the rule in 2011 after widespread
criticism.
Last year, it introduced a new draft that raised alarms at financial
services firms, which said the requirements would drive up costs and
put affordable retirement advice out of reach for lower- and
middle-income people.
A Labor Department summary of the final version, however, reflects
key changes in response to industry concerns, said Marcia Wagner, a
Boston-based lawyer who advises retirement plan providers.
"The department really did listen to a lot of the comments and made
an effort, as much as it’s able to do, bureaucratically and probably
politically, with the more onerous problems," Wagner said.
For example, the draft proposed an eight-month deadline to comply
with the rule, which firms said was unrealistic. It also listed
types of assets that advisers could recommend in order to steer
retail investors away from alternative investments and other
high-risk products.
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The final version eliminates that list, mostly in response to the
financial industry's concerns, the Labor Department said.
Under the final version, advisers may also recommend some in-house
investment products, branded with their firms' names, as well as
insurance products such as variable and indexed annuities.
Brokerages and many U.S. lawmakers were also concerned about a
requirement that brokers sign "best-interest contracts" with clients
at initial meetings. The document was to include investment
projections, fee disclosures and other detailed information.
While the contracts remain in place under the final rule, they can
now be as short as a paragraph, Labor Secretary Thomas Perez said,
and can be signed later along with other paperwork when customers
open accounts.
The final version also loosened compensation guidelines, allowing
advisers to collect "common types of compensation," such as
commissions and revenue-sharing, where brokerages receive payments
from mutual-fund companies to help promote products.
Nonetheless, implementing the rule will be costly and challenging
for firms, Wagner said. She said they would have to train and
monitor the many employees who have never been fiduciaries, as well
as draft new disclosures for client paperwork.
(Editing by Leslie Adler and Lisa Von Ahn)
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