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The DOL’s Fiduciary Rule: What We Can Learn From The U.K.

The DOL's Fiduciary Rule: What We Can Learn From The U.K.

by Joe Tomlinson

The Department of Labor’s proposed fiduciary rule has led to a furious debate over whether low- and middle-income Americans will be deprived of financial advice. Three years ago the U.K. made similar changes affecting the delivery of financial advice, and those changes were studied in detail. I’ll assess what we can learn from the British studies and give my views on additional steps the U.S. should take to improve financial outcomes.

The DOL proposal

The fiduciary rule requires that investment recommendations be in the client’s best interest rather than meeting a weaker standard, such as being “suitable” for a particular client. The DOL proposes expanding ERISA’s fiduciary rules to cover a broader range of retirement advice. Rollovers from 401(k)s and IRAs are a particular area of its focus because today such transactions are rarely covered under fiduciary rules. Advisor compensation is a specific target of the proposed rules, which would prohibit advisors from receiving sales commissions unless the advisor and client both sign a “best interest contract exemption” (BICE). This exemption allows commissions, but requires that advisors’ product recommendation be made “without regard” to...