Posted on by Jerome.Pfeffer


In 1974, Gas was 55 cents a gallon[1], Muhammad Ali regained his heavyweight title, sealing his fate as the greatest of all time, 401(k) plans did not exist, and IRAs had just been authorized. This was also the year the Employee Retirement Income Security Act (ERISA) was first enacted. Since that time, there has been a dramatic shift in the retirement savings landscape. Forty years ago, the world was one of defined benefit pension plans, while today America’s primary retirement vehicle is the defined contribution retirement plan. Interestingly enough, even with the drastic change in utilized plans, the rules have not been meaningfully changed since 1975.[2]


Evolution of the Fiduciary Rule:

ERISA Timeline Image

The changes in the retirement savings marketplace over the past 4 decades have increased the importance of sound investment advice for workers and their families.  On April 8, 2016, the DOL released the long-awaited Conflict of Interest rule. The rule “affects how investment advice is provided to every 401(k) plan, every IRA, and every rollover or distribution to or from either,” according to a U.S. Chamber of Commerce issue brief.[3]  This begs the question: How does this new rule affect Plan Sponsors?


Surprisingly, before the Conflict of Interest rule, advisors did not have a legal duty to act in the best interests of their clients.  They could choose to serve under a fiduciary or a suitability standard; the difference lies in the language used to define each. ERISA requires advisors to act as “prudent experts” and uphold the fiduciary standard, acting in the best interest of the client; whereas FINRA requires that advisors “have a reasonable basis to believe” that a recommendation is “suitable.” Under the new rule, all advisors will be required to act in the best interests of their clients. Some may choose to file an exemption known as the Best Interest Contract Exception (BICE or BIC), which allows advisors to receive variable compensation; we will discuss this in future posts.


Although the regulation is aimed at protecting investors, the final rule may impact advisor relationships, compliance obligations, and costs for plan sponsors.  Understanding how it may affect you is key and can be broken into three main points.



Many predict that the fiduciary standard will lead advisors to switch to either a flat-dollar or percentage-of-assets fee for their services, rather than receiving payment from commissions or from mutual fund revenue-sharing arrangements.  As a plan sponsor, part of your fiduciary duty is to keep retirement plan fees known and reasonable.  Now is a great time to open this conversation with your advisor.  Ask your advisor how they are compensated, and benchmark your plan with others in your peer group.


There is a difference between advice and education, one could trigger fiduciary responsibility while the other does not. The regulation carefully carves out education from the definition of investment advice so that plan sponsors can provide general education without triggering fiduciary duty. The final rule describes the types of information and activities that constitute non-fiduciary education, including plan information and general financial, investment, and retirement information. However, specific investment advice would need to abide by a fiduciary standard.


The DOL regulation will have a significant impact on rollovers.  Essentially, a recommendation to roll money out of a 401(k) plan or other defined contribution plan to an IRA is now a fiduciary act.  As a result, more employees may choose to stay in an employer-sponsored retirement plan as opposed to rolling their plan over to an IRA after they have left the company.  This may increase the administrative burden on your Human Resources team to keep track of former employees.


While these changes will directly impact your company’s retirement plan and place heightened importance on plan documentation, it’s okay.  The rule will raise the advisor standard to genuinely act in the best interests of their clients, helping to protect and prepare the retirement investor.  At Investment Solutions Group, we have been investment fiduciary advisors for over 20 years.  We have always had our clients’ best interests in mind, and we’re proud to continue servicing our clients as investment fiduciaries.


Securities and Advisory Services Offered Through LPL Financial A Registered Investment Adviser. Member FINRA / SIPC.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or

investment advice. This material was prepared for Jerome Pfeffer’s use.


[1] Collins, Bob. “Runup in Gas Prices Exceeds Price Impact of ’73 Oil Embargo.” NewsCut. MPR News, May 2013.

[2] “Fact Sheet.” : Department of Labor Finalizes Rule to Address Conflicts of Interest in Retirement Advice, Saving Middle-Class Families Billions of Dollars Every Year. Department of Labor, Apr. 2016.

[3] Joe, Alice. “US Chamber of Commerce. Assessing the Final DOL Fiduciary Rule.” April 2016.