News & Events

The Wait Is Over – the DOL Announces New Rules Impacting Broker Regulation

The Department of Labor recently enacted rules that require financial advisers and brokers handling individual retirement and 401(k) accounts to act in the best interests of their clients.  The much-anticipated rules have been in the works for almost the entire length of the Obama Administration.  The DOL, who introduced its proposed language a year ago, has fielded thousands of comments and held hearings to finalize the current rules.  The rules may still be challenged in court but bring to fruition what many lawmakers consider a necessity in the area of securities regulation.

The new law is likely to create a drastic shift towards lower-cost investments as it raises the standard regulating brokers from its former status of “suitability” to one that enforces “fiduciary investment advice responsibilities.”  Brokers will now take on more intense scrutiny when making choices, especially choices that are more expensive for the client or that earn a higher commission for the broker.

Rulemakers were especially concerned with the rules’ treatment of conflicts of interest –where a broker may have a financial incentive to promote certain investments that earn a higher commission or charge elusive fees and the customer is unlikely to be aware or able to make himself aware of such conflict.  Under the rules, if a broker suggests an investment that could create a conflict, he is required to offer a contract that guarantees that he will put the customer’s interests first.

Firms faced with the new rules would benefit from aggressively informing themselves on the rules’ application and putting self-policing standards in place now.  The rules are effective on June 7, 2016, and they become applicable on April 10, 2017.[1]

Haley Fowler Gregory


[1] The DOL set an applicability date of April 10, 2017 to provide “adequate time for plans and their affected financial services and other service providers to adjust to the basic change from non-fiduciary to fiduciary status.”