Retirement Advisers Get Batch of Fiduciary Rule Guidance

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By Sean Forbes

Oct. 27 — The Department of Labor granted retirement advisers their wish with a batch of guidance on its fiduciary rule.

Much of the guidance addresses the best-interest-contract exemption, one of the most confusing aspects of the rule for many in the industry. For example, the DOL clarified that the exemption is broadly available for a wide variety of transactions relating to the provision of advice in the retail investment market.

The exemption allows financial advisers to retirement investors to use certain compensation arrangements that might otherwise be forbidden, as long as they put their client’s best interest first.

The guidance was released Oct. 27.

Phyllis C. Borzi, assistant secretary of the DOL’s Employee Benefits Security Administration, and the principal architect of the rule, said in a blog posting that the guidance was based on the input the agency received from the financial services industry and others.

“These questions are an important part of the regulatory process as they allow the department to clarify important parts of the rule, and head off misunderstandings that could lead to bad results for retirement savers, or financial services professionals,” Borzi said.

Overall, the fiduciary rule tightens conflict-of-interest restrictions on financial advisers handling retirement accounts.

The rule is effective April 10, 2017, with a transition period until full compliance on Jan. 1, 2018. The DOL said in its guidance that during the transition, it will focus on providing compliance assistance, rather than citing violations and imposing penalties.


Although robo-advisers have generally been considered fiduciaries, the DOL clarified that they don’t get a blanket exemption.

The robo-advice industry has been exploding since startup firms such as Wealthfront Inc. of Silicon Valley and Betterment LLC of New York pioneered the market. Traditional firms such as Vanguard Group, BlackRock Inc., Charles Schwab Corp., Fidelity Investments, Morgan Stanley and Bank of America Corp. have also entered the market.

Robo-advisers are expected to have about $2.2 trillion in assets under management by 2020, according to business management consulting firm A.T. Kearney Inc., based in Chicago.

The best-interest-contract exemption “does not cover advice provided solely through an interactive Web site in which computer software-based models or applications provide recommendations based on personal information that the investor supplies without any personal interaction or advice from an individual adviser (i.e., robo-advice),” the DOL said.

The department said it didn't make the full exemption “generally available for such robo-advice based on its view that the marketplace for robo-advice is still evolving in ways that appear to avoid conflicts of interest that would violate the prohibited transactions provisions and that minimize cost.”

However, and with some exceptions, the exemption does generally apply to robo-advisers that are level-fee fiduciaries, the DOL said. Such fiduciaries receive a fee based on the value of a retirement investor's assets, the department said.

To contact the reporter on this story: Sean Forbes in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

For More Information

Text of the guidance is at

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