The DOL Rule: Overview, Background and Process | American Funds

Capital Group Policy Spotlight

June 23, 2016

The DOL Rule: Overview, Background and Process

The new DOL fiduciary rule is based on a bedrock principle that financial advisors should put their customers’ best interests first — something we at Capital Group strongly support. In addition, the rule does many other things in implementing that principle, including defining fiduciary in very broad terms.



Clarke Camper


Clarke Camper: On the face of it, the DOL rule is quite simple. It has as a bedrock principle that financial advisors should put their customer’s best interests first. You’ll see widespread agreement with that certainly at Capital Group. We strongly support that principle. However, the rule does a lot of other things in implementing that principle. For instance, the rule has a very broad definition of fiduciary.

Many activities that previously have not been considered a fiduciary activity, such as educational activities, many of those now going forward are going to be considered fiduciary activities. The rule also for instance really puts a very strong finger on the scale of level compensation for advisors. Certainly advisors may not or are not required to receive level compensation but in order to receive unlevel, in other words, compensation maybe around a commissionable product for instance, advisors have to go through a relatively high hurdle called “The Best Interest Contract Exemption or BIC.”

Again there are a couple of pieces there that go along with the bedrock principle that will have much wider implications than meet the eye.

The DOL Fiduciary Rule is really the culmination of about six years of effort by DOL with a lot of input from industry participants both advisors, investment firms, consumer advocates and the like. DOL started this effort back in 2010. In fact, they issued an initial proposal that they ended up withdrawing because it wasn’t quite to their liking or frankly to most of the other stakeholders’ liking. Then DOL re-proposed a rule about a year ago, in April 2015, and then issued the final rule in April 2016. Again, it’s been a long process.

What DOL really is trying to get at is that they thought it was very important for regulation to require financial advisors to put their customers’ interests first. Now, DOL along with Capital Group generally feel that that happens anyway, but in many ways understandably DOL wanted to make sure that that bedrock principle was in regulation.

Going back to the Dodd Frank Act, that Act envisions really both the DOL and the SEC issuing fiduciary rules for their respective jurisdictions. As things have played out, SEC has not ended up issuing such a rule. We know obviously DOL has moved in and the rule applied to retirement plans and IRAs. Big question now is what does the SEC do? SEC chair, Mary Jo White, has made clear that she would like the agency to propose a fiduciary rule. However, it is a challenge in many ways both politically and substantively for the SEC. It’s clearly on their work plan. I would not expect the SEC to produce a fiduciary rule anytime soon. That said, as the DOL rule is implemented, it’s going to increase the pressure on SEC to issue a similar rule. It will not be the same, but it will be similar and hopefully complementary.

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