The Department of Labor released Friday the second batch of frequently-asked-questions guidance on its fiduciary rule.
In releasing the 16-page FAQ, which includes 30 questions and answers, Phyllis Borzi, assistant secretary of Labor for the Employee Benefits Security Administration, noted that the questions are "meant especially for workers and retirement investors." EBSA was deploying the FAQs to the public early Friday afternoon through its email subscription service.
Said Borzi: "The new consumer protections start to go into effect this April, and we want to be sure that consumers have the information they need to make use of those new protections," adding that EBSA wants to "answer as many questions as possible about the new rules."
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Knut Rostad, president of the Institute for the Fiduciary Standard, said that the FAQ "is an excellent first cut at boiling 1,000 pages of rule language to 16 pages. It describes what it means to be a retirement advisor and where the industry just got it completely wrong again and again."
The FAQ, he added, is "a great basis for advisors to use to go the next step and get the most key points for investors in just two or three pages."
One question asks: Will the rule cause change in the financial services industry?
EBSA's answer: "Yes. Although many advisors already work hard to give sound advice that puts the customer first, the new rule will generally make best interest advice the law. Also, the rule will require many financial institutions to significantly change their compensation practices. The financial services industry will not be permitted to use incentives such as quotas, bonuses or prizes that encourage advisers to make recommendations that are not in your interest."
Another question asks: I have been told that the rule and exemptions will prevent me from receiving advice paid for with commissions, and will instead require me to receive advice paid for with an ongoing asset-based fee. Is this true?
EBSA's Answer. "No. The rule permits firms and advisors to give advice under a wide variety of compensation arrangements, including commissions. As a result, there is nothing in the rule or exemptions that requires advisors to move clients from commission-based accounts to accounts that are charged an ongoing asset-based fee." Another consumer's query asked: My financial advisor says he must switch my IRA from a "non-advisory" account where I currently pay commissions for each transaction to an "advisory" account for which I will pay an annual fee based on the assets in my IRA. Do the rule and exemptions require this change?
EBSA's Answer: "No, there is no requirement in the rule or exemptions that your financial advisor must charge you an asset-based fee. Your financial advisor may charge you a commission or other transaction fee, an asset-based fee, or an hourly fee, or your financial advisor may receive a payment from the provider of an investment product, so long as the advisor complies with the applicable rules regarding any conflicted payments. In fact, the exemptions flexibly accommodate a wide range of compensation practices, including commission-based accounts, while minimizing the harmful impact of conflicts of interest on the quality of advice."
The FAQ comes just days after the U.S. Chamber of Commerce warned that Labor's fiduciary rule could be halted "within days" of the new administration through action taken by a new Labor chief, instructions from the White House, or pending court cases.
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Melanie Waddell
Melanie is senior editor and Washington bureau chief of ThinkAdvisor. Her ThinkAdvisor coverage zeros in on how politics, policy, legislation and regulations affect the investment advisory space. Melanie’s coverage has been cited in various lawmakers’ reports, letters and bills, and in the Labor Department’s fiduciary rule in 2024. In 2019, Melanie received an Honorable Mention, Range of Work by a Single Author award from @Folio. Melanie joined Investment Advisor magazine as New York bureau chief in 2000. She has been a columnist since 2002. She started her career in Washington in 1994, covering financial issues at American Banker. Since 1997, Melanie has been covering investment-related issues, holding senior editorial positions at American Banker publications in both Washington and New York. Briefly, she was content chief for Internet Capital Group’s EFinancialWorld in New York and wrote freelance articles for Institutional Investor. Melanie holds a bachelor’s degree in English from Towson University. She interned at The Baltimore Sun and its suburban edition.
