TD Ameritrade

Need help understanding the DOL Fiduciary Rule?

DOL Fiduciary Rule Resource Center

Need help understanding the DOL Fiduciary Rule?

On June 9, 2017 the Department of Labor (DOL) Fiduciary Rule will require those who advise you on your retirement plan - such as broker-dealers, investment advisors, and insurance agents - to act in your best interests when they provide investment advice for a fee or other compensation. While brokerage firms have long operated under standards designed to take clients’ needs, risk tolerance and other suitability considerations into account, the rule addresses potential conflicts of interest that can arise.

Sound complicated? It doesn't have to be. We want to be a resource to help you understand the rule and its potential impact. Here we share answers to the questions that we’re hearing, the latest news and insights from our experts.

Fiduciary Rule Update: In February 2017, President Trump signed an executive memorandum instructing the DOL to review the Fiduciary Rule, more specifically to assess the potential impact the rule may have on retirement savers’ ability to access advice. The rule’s applicability date, initially set for April 10, 2017, has been delayed until June 9, 2017.

FAQs

What’s a fiduciary?

Basically, “fiduciary” means “involving trust”. So in financial language, a fiduciary is someone you entrust with power or property, and who owes you good faith and trust. We see our fiduciary role in regard to investment advice for retirement plans as a positive step that reinforces our continued dedication to client needs.

But weren’t retirement investment firms already supposed to be acting with my best interests in mind?

Brokerage firms have long been required to base investment recommendations on your needs, risk tolerance and other suitability considerations. For decades, the Investment Advisers Act of 1940 has had a fiduciary standard in place for Registered Investment Advisers (RIAs).

But the DOL has taken things a step further to provide additional protection for investors. That means more client interactions, such as advice about rollovers to IRAs, will require all retirement advice providers to operate under a DOL fiduciary standard. 

How does the rule impact retirement investors?

Financial firms are starting to adjust their advice, service, and product offerings ahead of the rule’s applicability date, which, for most aspects of the rule, was initially scheduled for April 10, 2017, but has since been delayed until at least June 9, 2017. Rather than take away services from our retirement clients, we plan to give you more tools and education - to provide more guidance and advice-oriented solutions for retirement investors of all abilities and sizes. These include various ways to have relationships with knowledgeable people at our branch locations across the country, on the phone, and online.

TD Ameritrade is also among the companies taking steps to be even more transparent, including making some changes in the ways we offer retirement advice to you, our clients.

You may not even notice some of the changes, but suffice to say we're taking the necessary steps to ensure we comply with the new rule. Please note that clients who are purely self-directed will see little impact.

Curious if this new ruling is going to cost you anything? We don’t anticipate any extra cost to you, the investor, due to the new rule.

Why did the DOL create this new rule?

The fiduciary rule is a key part of the Obama White House’s “Middle Class Economics” initiative. The DOL wants to reassure investors that there’s a level playing field, and that you can know the retirement-related investment advice you receive is in your best interest and not necessarily in the interest of the person giving the advice. Think of it as a 'you first' policy.

Here's a "did you know" for you: The Employee Retirement Income Security Act (ERISA) administered by the DOL was enacted in 1974, and this is the first real rewrite since then. In 1974, Individual Retirement Accounts (IRAs) had just been authorized, and there was no such thing as a 401(k).  Think of how many products did not exist then, such as exchange traded funds (ETFs) and options. It’s important for retirement investor protection laws to keep up with the changing financial world, and that’s one goal of the new DOL rule.

The DOL's main goal for the rule is to provide stronger protections for the millions of Americans like you, who wish to build and protect their retirement nest eggs.

Can I still trade options in my retirement account?

Yes, you can. Options and futures are permitted (for qualified clients), as are other products such as non-traded real estate investment trusts (REITs) and variable annuities, under the rule's "Best Interest Contract Exemption" ("BICE").

What’s a BICE?

Some brokerage firms and RIAs, because of their business structure, may have conflicts of interest in their retirement-related investment advice activities. So the rule allows brokerage firms and RIAs to enter into "Best Interest Contracts" with their clients under the rule’s Best Interest Contract Exemption (“BICE”). 

The BICE allows firms to continue to use many current compensation and fee practices, but they need to disclose and mitigate conflicts of interest when providing investment advice to retirement clients.  They also need to act in your best interests when doing so. And if they don't follow the requirements in the exemption, you’ll have a contract to hold them to it when the rule takes full effect on January 1, 2018.

The BICE also requires financial firms to outline the services they provide to retirement clients and the costs for each service, adding more transparency to your relationship with your broker or advisor.

Will I notice changes at TD Ameritrade?

The majority of our retirement clients won’t see anything significant, as most are self-directed and we will continue to offer commission-based IRAs. Most of the changes will occur in our own internal process automation, associate training, tools and systems.

That said, you'll see more tools and education to provide additional guidance and advice offerings. These include services such as free goal planning and a new automated investment management service from TD Ameritrade Investment Management LLC called Essential Portfolios, designed to provide basic diversified ETF portfolios at a lower fee.*

We will continue to strive to offer the best possible client experience, with knowledgeable people at our branch locations across the country, on the phone and online.

Another "did you know:" A portion of every TD Ameritrade employee’s compensation is based on the satisfaction of their clients. That's one way we already work to align your best interest with ours.

Also, every RIA doing business through TD Ameritrade already is legally bound to act in their clients' best interests as fiduciaries under the Investment Advisers Act of 1940. They will, however, further adjust their retirement advice activities to the more stringent rule standards.

Why is the DOL concerned about commissions and variable compensation?

The DOL believes commissions and other variable compensation sometimes can lead advisors to put their interest ahead of investors'.

When the rule becomes fully effective in January 2018, you can still get advice that is commission-based but with additional protection through the rule's "Best Interest Contract”.

I'm looking to roll over a 401(k) into an IRA. Is there a best-interest protection in place?

At TD Ameritrade, the majority of rollovers to IRAs are self-directed. So if we do not provide advice about your rollover, the DOL rule is inapplicable.

For a rollover from a 401(k) into an IRA in which we provide advice, we will use the "BICE" in regard to the rollover, and we will not provide ongoing advice beyond the rollover period. Unless, of course, you ask us to, meaning you engage us as to one of our advisory services.

If you are working with a RIA, prior to rolling over a 401(k) plan to an IRA account managed by the RIA, the RIA will need to compare your current fund lineup, costs, services and other factors with their own offerings and then determine whether a rollover is truly in your best interest. And they must fully document that assessment. But, again, RIAs have acted as fiduciaries under the Investment Advisers Act of 1940 for decades.

I currently work with an RIA. Will that relationship change? How will he or she be compensated?

Though RIAs have been required to act as fiduciaries under the Investment Advisers Act of 1940 for decades, there are some higher rule standards for them. While RIAs generally have fewer conflicts than full-service brokers, they are educating themselves on the nuances of acting in the “sole interest” of their retirement account clients under the ERISA standard and the rule.

In general, most RIAs get compensated through fees, usually based on the assets they manage for clients. This usually means there’s a clear alignment of interests. TD Ameritrade gives investors access to ongoing financial advice through a referral service to independent RIAs.  Those RIAs have operated under an Advisers Act fiduciary standard for decades, requiring them to act in the best interests of their clients. But remember, those RIAs are independent advisers who use our technology platform, brokerage and custody services; they’re not affiliated with TD Ameritrade.

The rule was instituted under the Obama administration. In February 2017 the Trump administration requested a review of the rule, and the applicability date has been pushed back to June 9. Why?

The President’s Memorandum and other considerations, including recent comment letters, led the DOL to push the Fiduciary Rule’s applicability date back from April 10, 2017 to June 9, 2017.  At the same time the DOL changed that date, the DOL also reduced the rule’s associated requirements for 2017.  When the review is completed later this year, there may be further revisions to the Fiduciary Rule.

What if there are changes to, or even a rollback of, the rule?

If the rule is delayed or halted, it would have little impact on what we do. We at TD Ameritrade remain focused on complying with the rule. While other firms have had to make some major changes to their business models, we have not, and our client-first approach will preserve as much of the client experience as possible. Rather than take away services from you, our clients, we plan to give you more tools and education and shift our model a bit to provide more guidance and advice. Our work in these areas will continue regardless of any future decisions related to the DOL rule.

As we see it

The Ticker Tape is our online hub for the latest financial news and insights from our experts. Here are a few suggested articles about the DOL Fiduciary Rule:

 

 

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Further reading

Check the background of TD Ameritrade on FINRA's BrokerCheck