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ADISA Successfully Advocates Alongside Industry Organizations to Secure Impactful Changes to the Final DOL Fiduciary Rule

Apr 07, 2016

Final rule eliminates asset list, allows financial advisor commissions and extends implementation date

As expected, the Department of Labor today released its final fiduciary rule. ADISA, the nation’s largest trade association representing the alternative and direct investment industry, had been a vocal advocate for changes to the proposed versions of the rule and is pleased that significant revisions were enacted that will protect the retirement choices of American retirement savers who elect to invest in alternative and direct investments.
 
In particular, the final rule eliminates the “asset list” from the best interest contract exemption (BICE), allowing for commission-based compensation and providing an extended implementation deadline. The final rule’s BICE no longer precludes financial advisers from recommending important alternative investments to their retirement saver clients solely because these investments pay a commission or other variable compensation. Certain aspects of the rule will require compliance by brokers beginning in April 2017 in order to take advantage of the BICE, while other requirements will go into effect January 1, 2018. 
 
“ADISA strongly believes that these investments provide important benefits, including portfolio diversification as well as historical returns that are not correlated to the broader stock and bond markets,” said ADISA Executive Director/CEO John Harrison. “The new rule raises the bar for financial advice to a fiduciary standard, while not specifically restricting asset allocation choices.”
 
But, as ADISA president-elect and chairman of its legislative and regulatory committee John Grady explains, ADISA believes that as adopted, the rule will still present significant challenges, “The rule effectively promotes the fee-based approach to providing advisory services, an approach that we continue to believe does not operate well for many Americans, and particularly for middle class and younger savers with smaller retirement account balances. The companion exemption will permit financial advisers to continue to use a variable compensation approach to serving retirement savers, but there are real challenges associated with designing and implementing the systems that are needed to fully achieve compliance with the exemption’s terms.”
 
ADISA believes that the nation’s retirement system must work to benefit all retirement savers. “ADISA applauds the changes made by the DOL to the final rule and companion exemption, and acknowledges 
 
the changes that were made in response to the valid critiques leveled at its proposed approach by ADISA and other industry advocates,” said Grady. “It remains to be seen, however, whether the important policy goals sought during this multi-year effort will be realized by everyone in the retirement community, or whether this action will have the unintended consequence of depriving many Americans of access to advice and the investment products required to achieve their retirement goals.”
 
ADISA’s president-elect states that these challenges are substantial and may in fact be prohibitively expensive for firms to overcome. Grady continues, “The revisions made to the exemption appear to be designed to lessen these burdens as a whole, but we know that our members who are financial advisory firms will still face an uphill battle to implement the exemption. If the exemption is not workable for the financial advisory industry from the standpoint of cost, complexity or potential liability, then the effects will be felt by retirement savers who either cannot access critically important investment advice or who will not be able to purchase necessary investment products in the absence of the exemption.”