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Fiduciary Duty

Impact of the DOL’s Fiduciary Rule on RIAs: Business as Usual

You may be aware that the U.S. financial industry has been abuzz for the past year or two about a new rule that could disrupt the industry in significant ways. But we’re here to tell you that for McKinley Carter, it’s business as usual. Why? Because as a registered investment advisor (RIA), we have always operated in a fiduciary capacity, thus avoiding the conflicts of interest for which the Fiduciary Rule is meant to address.

What is the Fiduciary Rule all About?

Much has been written about the Department of Labor’s (DOL) Fiduciary Rule…possibly too much. Some of the articles have focused on the rule’s delays and the difficulty of enacting this law. Considering that it has taken seven years to bring this legislation to bear since its inception in 2010 (alongside the Dodd-Frank Bill), at first glance, it might seem remarkable to report on such a delay. But, if taken in the context of rulemaking for the securities industry overall, seven years is really not noteworthy. Take, for example, the Employees Retirement Income Security Act (ERISA), which was passed in 1974 in response largely to the Studebaker’s Pension failure (read: debacle) of 1963 —yes, I said 1963.

Other articles have focused on the terribly disruptive impact that this rule will cause in the securities industry, and how deep the costs will run to “re-tool” some of the nation’s largest financial institutions in order to comply (I believe this was the same argument that was made to avoid switching over to the metric system back in the 1970’s – now only half the bolts “American-made” cars are metric and the other half SAE…go figure). Many articles were quick to report how several firms were even contemplating exiting the business to avoid costly future liability and possible litigation (I love how one law firm even purchased the domain name: that’s clever!).

It’s All in the Name

What I haven’t read (yet) are any articles about the segment of the securities industry that WON’T be impacted by the DOL Fiduciary Rule. That’s right…those who will NOT be significantly impacted. You see, the DOL fiduciary rule, isn’t a fiduciary rule at all. In fact, this is a moniker that the media has given the rule.

The real (albeit “unsexy”) name of the rule, as proposed in 2015, is: Definition of “Fiduciary”; Conflict of Interest Rule in Retirement Advice. Yes, the rule attempts to clarify who is a Fiduciary — a concept most people don’t fully understand. But mostly, it outlines a series of measures that financial advisors must adhere to in order to avoid “prohibited transactions,” or having a conflict of interest with those individuals they advise with regard to their retirement assets. What is groundbreaking about the rule is the inclusion of IRAs and rollovers into IRAs, which previously had not been subject to such a fiduciary arrangement.

No Impact for RIAs

But as I mentioned earlier, there is a group of financial advisors that have been for some time —well before the DOL Rule was conceived — adhering to the very practices the DOL recommends in its new rule, and thereby, avoiding any conflict of interest by design. These advisors are known as Registered Investment Advisors or RIAs. McKinley Carter is an RIA. And unlike advisors from brokerage, insurance, and banking institutions, we do not create or sell any investment products, some of which might have indirect fees and compensation not seen or disclosed to the ultimate client. On the contrary, we are independent of those product-producing entities and focus on providing “advice” and guidance to our clients to help them create retirement solutions that best suit them and their individual situations.

RIAs generally charge a flat fee rather than a sales commission, and these fees are generally mutually-agreed upon at the beginning of the relationship and are visible in both the client agreement and the client statement. Most RIAs also explicitly state their status as fiduciary in their client agreements, which means they are expressly working in the best interest of the end client. For this reason, sometimes RIAs (and McKinley Carter) are referred to as Fiduciary Advisors. It is these concepts (transparency and clients interests above all else) that the DOL is trying to put forth in its new rule.

What’s on the Horizon?

There will be no reward for those already following the rules; in fact, RIAs will most likely be “rewarded” with added competition once brokers, insurance agents, and bankers are forced to act (and look) like RIAs via the enactment of the new DOL rule. Good Luck! And…may the best “man” win.


A history of the DOL fiduciary rule, May 25, 2016 by Carley Meiners, Mary Shaub

DOL Fiduciary Rule Has Financial Services Cos. In A Flurry – Law360 (Several Articles)

Will ERISA preempt state law under the fiduciary rule?

DOL Decision Means Return to ‘Limbo’ For Fiduciary Rule by Christopher Robbins Financial Magazine

Post-DOL Fireside Chat with Michael Kitces (Webinar) The Modernist Advisor

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