Our Thoughts

The DOL Rule is Dead…

But It Transformed Your Investment Outlook in 5 Major Ways

Can a federal regulation make the financial industry more investor-friendly, even when that rule gets struck down in court? That’s exactly how the saga of the Department of Labor’s (DOL’s) Fiduciary Rule played out. Here’s what happened and how it affects you (in a good way!): 

A Consumer-Focused Rule  

The DOL Rule was conceived as a complete reimagining of how financial professionals advise clients on retirement investments. President Obama challenged the Department of Labor’s leadership in 2015 to reign in certain practices in the financial advice marketplace that were viewed as unacceptable. The resulting package of regulations was collectively known as the 2016 DOL Rule.  

These regulations updated those developed initially under the Employee Retirement Income Security Act of 1974 (ERISA). The new regulations were designed to: 

  • Apply to any broker, registered investment advisor, insurance agent, or another professional who receives compensation for advising retirement investors. The rule classified such a professional as a “fiduciary”—an advisor bound legally and ethically to act in the best interest of clients. 
  • Halt investment practices not in line with clients’ best interest. These included pushing products that are not appropriate for the investor and making sales without a client fully understanding the product or its related fees. 
  • Expand DOL’s oversight beyond employer-based plans—401(k)s, 403(b)s, and other defined contribution/distribution plans—to encompass Individual Retirement Accounts.  

Some analysts predicted the DOL Rule would have eliminated billions of dollars per year in unnecessary and bloated investment costs. 

Politics & Court Ruling Shift the Regulatory Scene…

A change in administration policy after the 2016 elections, opposition from a well-organized broker lobby, and a successful court challenge led to the DOL Rule’s demise. In June 2018, the U.S. Court of Appeals struck down the regulations before they could be fully implemented.  

As a result, some businesses that had geared up to provide a fiduciary level of care are working quickly to unwind these new practices and return to a commissioned-product sales model. 

…But the DOL Rule Has Left Its Mark

Despite the demise of the DOL Rule, the policy debate surrounding the regulations caused significant shifts in the financial services industry: 

  1. Investors are savvier and seek better alternatives to high fees and commission-based products. 
  2. Many financial advisors now offer flat fees and take no commissions on investment products. Fund managers are introducing new fund share classes with lower expenses. 
  3. States are working on their own (or) own versions of fiduciary care legislation to ensure investor protections. 
  4. The Securities and Exchanges Commission is also developing its version of the regulations. 
  5. DOL has announced that it is redrafting its fiduciary regulations, aiming for another try at reform in 2019. 

Bottom line: More consumers than ever recognize they can get better returns for lower fees with a fee-only advisor like FJY Financial. If you seek this elevated approach to all your investment assets—retirement or otherwise—contact us for a free consultation. 

FJY Financial is an independent financial advisory firm that provides a fiduciary level of care to every client for all investment assets we oversee. We always have—and always will—act in our clients’ best interest with no exception.