A new fiduciary rule could potentially reduce the number of such advisors.

Today, many people claim to offer retirement planning. In the near future, their ranks may thin because of new regulations on qualified retirement plans being phased in by the Department of Labor.

Things are changing quickly.

By the start of 2018, any person or firm providing advice to IRA owners and participants in workplace retirement plans will be asked to assume a fiduciary responsibility. In taking on that responsibility, that person or firm will have an ethical and legal duty to act in a client’s best interest.1

Retirement planning professionals routinely act in their client’s best interest, every day. If they do not, red flags will soon be thrown and regulators will make them pay for their ethical lapses. Not all retirement planners, however, serve their clients as fiduciaries. The Department of Labor wants to set the retirement planning bar higher so that they do.

Why might this new rule leave consumers with fewer retirement planning choices?

The answer to that question is a bit lengthy, but worth reading and understanding.

For decades, the financial services industry was synonymous with brokerage. Stock brokers received most or all of their income through sales or trading commissions. The stock broker era is long gone, and today many retirement planning professionals prefer to earn income from annual fees – but commissions are still around. In fact, some of the retirement accounts savers invest in are traditional brokerage accounts in which the buying and selling of shares produces commissions.1

So, while the retirement planning profession has evolved, its basic compensation model has not. This disconnect has put some retirement planners into an awkward place.

Another holdover warrants discussion here. The suitability standard has been the norm in the financial services industry for many years, rather than a fiduciary standard. Under the suitability standard, financial professionals recommend products they believe are “suitable” for a client. To be suitable, an investment (or other financial product) must be judged appropriate given the client’s goals, age, net worth, and income.1

The Department of Labor sees a flaw in this. A very broad range of investments or products may meet the suitability standard, with the one that results in the largest commission for the retirement planner being “pushed” on the client. The DoL is asking: is this kind of thing really in a client’s best interest? It feels that the suitability standard does not do enough to weed out potential conflicts of interest, and it sees the fiduciary standard as a remedy.1

The new rule is pushing retirement planners toward fees & away from commissions.

As it stands now, retirement planners have two choices come 2018. They can abide by a fiduciary standard and forgo commissions or payments from retirement accounts that will constitute a potential conflict of interest for the client relationship. Or they can have their client sign a Best Interest Contract Exemption provided by their broker-dealer, informing the client that they will continue to accept commissions, while vowing to act in his or her best interest.1,2

Some of the major investment firms, such as Merrill Lynch, are moving to prohibit the sale of investments that would generate commissions in retirement accounts. (Others have decided to keep commissions in their retirement accounts for the moment.)3

The writing is on the wall: basically: if you want to provide retirement planning in the near future, you can either a) provide it for a fee, or b) continue to accept some commissions, while admitting a potential for conflicts of interest. Instead of nestling uncomfortably between a proverbial rock and a hard place, some financial services professionals whose “retirement planning” largely amounts to product sales may exit the fold as they are left with more paperwork and fewer investment choices to offer clients. 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.


  1. nytimes.com/2016/04/07/your-money/new-rules-for-retirement-accounts-financial-advisers.html [4/7/16]
  2. knowledge.theamericancollege.edu/blog/understanding-the-dol-rule-bice [8/12/16]
  3. cbsnews.com/news/merrill-lynchs-landmark-move-to-end-broker-commissions/ [10/17/16]