INDUSTRY Advisors Jolted by Details of Proposed DoL Payout Disclosure Plan
November 5, 2015 by Charles Paikert
WASHINGTON — Talk about complete disclosure.
It takes a lot to surprise most advisors, but details of the Department of Labor’s proposed fiduciary rule announced at the Financial Services Institute’s annual Advisor Summit had them gaping.
Under the suggested guidelines, advisors would have to provide complete payout information to clients for each advisor and each product. Those in the general session audience gasped aloud when they heard the details announced at the FSI general session. They were also surprised when informed the proposal includes a mandate for firms to have a website revealing information previously considered confidential.
The newly mandated website must show both the direct and indirect compensation payable to the firm and each individual advisor “for each asset that has been purchased, held or sold within the last 365 days, and all assets currently available for purchase,” according to the DoL’s proposal.
NEW DISCLOSURES PART OF EXEMPTION CONTRACT
Both directives would be required as part of the proposed rules’ Best Interest Contract Exemption for advisors and broker-dealers working on clients’ non-401(k) retirement accounts.
The exemption mandates that a client sign a written contract in which the firm and financial advisor acknowledge fiduciary status and, among other things, provide extensive warranties that, according to the FSI, “will require extensive changes to compensation models.”
FSI executives strongly criticized the proposed requirements, as did advisors at the conference.
‘ENORMOUS LIABILITY EXPOSURE’
As currently written, the Department of Labor rules would create “enormous liability exposure and raise costs significantly” for advisors and broker-dealers, according to David Bellaire, FSI’s executive vice president and general counsel.
The guidelines would also put pressure on compensation models and result in “reduced access to retirement advice, products and services for small and mid-size investors,” Bellaire said.
Advisors peppered Bellaire with questions concerning the payout and website disclosures.
Nonetheless, the proposed fiduciary rule appears to be steamrolling towards implementation, FSI executives said.
Although FSI and other industry groups have lobbied the Labor Department to have another comment period to review the rule, the next scheduled step is for the proposed fiduciary rule to go to the Office of Management and Budget for review.
Next year’s conference, to be held in Dallas on Sept. 25, 26 and 27, will be completely devoted to reviewing the new rule and how to implement it, according to FSI CEO Dale Brown. Advisors should start reviewing client accounts that come under the proposed rules now, Bellaire added.
