Vanguard believes that those who provide investment advice should be required to act in the best interests of their clients but that the rules shouldn’t curtail access to critical services because of complexity or overly broad definitions. In Vanguard’s view, earlier versions of the DOL rule applied the fiduciary standard too broadly and in circumstances where investors didn’t have a reasonable expectation that they were being advised.
Moving in the right direction
But according to John Schadl, head of ERISA & Fiduciary Services in Vanguard’s Legal Department, the DOL has attempted to define advice in a way that better reflects the expectations of investors, advisors, and service providers. Specifically, he said the rule is more aligned with existing Financial Industry Regulatory Authority (FINRA) standards for what constitutes a recommendation, although the DOL could have done more to harmonize these standards.
“Vanguard and others in the industry believe that fiduciary advice standards should be straightforward and consistently applied to all types of investors and investment accounts,” Mr. Schadl said. “We hope that the DOL will continue to work with other regulators on alignment of fiduciary advice standards to help ensure a consistent investor experience.”
The DOL has also made substantial changes in the Best Interest Contract Exemption with the goal of facilitating implementation. “The prior DOL proposal subjected advisors to an unworkable set of conditions,” Mr. Schadl said. “The final rule makes strides in this area, including contract and disclosure requirements that are more practical and easier to follow.”
The DOL also addressed other compliance concerns by extending the final rule’s general applicability date to April 2017, with more complex conditions phased in by January 2018.
However, Mr. Schadl cautioned that these positive developments don’t mean that implementation of the new standards will be easy or resolve all concerns about the workability of the rule. “All of the effort within the industry to improve the DOL proposal appears to have produced positive results,” Mr. Schadl said. “But as we continue to analyze the details, it is almost certain that we will find provisions of the new rule that will adversely affect some within the industry,” Mr. Schadl said.
Vanguard is preparing a more detailed analysis of the final rule and will provide additional information about potential effects on different types of investors. “We are cautiously optimistic about the efforts to improve the new rule and balance the needs of different stakeholders,” Mr. Schadl said. “We urge the DOL to continue to work with the industry to clarify and simplify the implementation process as we approach next year’s effective date.”
Please remember that all investments involve some risk.
Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account.
There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.