Department of Labor’s Fiduciary Rule


July 13, 2016

The Department of Labor’s fiduciary rule mentioned in our January 7th letter was issued in its final form yesterday. As a refresher, the intent of the rule was to expand the types of retirement investment advice covered by fiduciary protections, preserve access to retirement education, theoretically reduce conflicts of interest, and provide for certain carve-outs and exemptions.

This particular rule was subject to six years of debate as well as extensive feedback from both consumer groups and the financial services industry. In the end, Labor Secretary Thomas Perez announced the completion of the rule with the following: “It ensures that putting clients first is no longer a marketing slogan, it’s the law”.

Of course, the AFAM team believes that putting the client first has always been paramount, but we still agree that placing some structure around that belief will ultimately be beneficial for all.

Much of the media interest around the DOL fiduciary rule has focused on commission-based firms, whereas AFAM is a fee-based investment advisor. However, you may notice some changes as we update our processes to accommodate compliance with the rule in the coming months.

As the final rule was just published, we are still digesting its implications for our firm and our clients. The details can be found at the Federal Register under the “Special Filing” dated 04/06/2016: https://www.federalregister.gov/public-inspection. Additionally, a fact sheet in plain English is located at https://www.whitehouse.gov/the-press-office/2016/04/06/fact-sheet-middle-class-economics-strengthening-retirement-security.

The bullet points below provide a very high-level overview.

  • – Any individual that receives compensation for making specific investment recommendations to a retirement plan sponsor or IRA owner shall be considered a fiduciary.
  • – As stated in the fact sheet, “Being a fiduciary means that the adviser must provide impartial advice in their client’s best interest and cannot accept any payments creating conflicts of interest unless they qualify for an exemption intended to assure that the customer’s interests are protected”.
  • – Investment education activities and/or a recommendation that an advisor hire oneself to render advisory or asset management services do not constitute fiduciary advice.
  • – New clientele, or existing clientele who open a new account, shall likely see an updated clause within our investment management agreement that specifically addresses retirement accounts and compensation.
  • – Existing clientele who currently hold retirement accounts managed by AFAM shall likely receive an email or letter addressing same.

There are additional record retention and disclosure obligations for AFAM, but these will rest with our side of the business and ultimately be made available online and upon request.

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For our clients, and potential clients, the crux of the rule is to ensure that we are committed to providing advice in your best interest, that we adopt policies and procedures to ensure the same, and that we always properly disclose any potential conflicts of interest.

As always, we thank you for your business and welcome any questions or comments you might have about your account, the markets, or investment rules and regulations.

Kindest regards,

Elizabeth M. Willmore

Chief Compliance Officer

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