DOL Fiduciary Rule Advances to OMB

February 05, 2016

DOL Fiduciary Rule Advances to OMB
By Doug Baxley, Vice President of Compliance

Late on Thursday, January 28, the Department of Labor (DOL) took the next step in advancing their Fiduciary Rule proposal.  The controversial rule proposal was sent to the Office of Management and Budget (OMB) for a final review.  The OMB has up to 90 days to review the rule; however, review is expected to be expedited and completed in March or April.  Once the rule is approved by OMB, the DOL will publicly release the rule in the Federal Register, which starts the clock toward the effective date of the rule.  Under the proposed rule, the effective date is set for eight months; however, this may change under the final rule.  Though various strategies to halt or stop the rule have been reported in recent weeks, the industry consensus is that these efforts have a low probability of succeeding and the rule is expected to move forward.

Based on the last version of the DOL’s proposed rule, it would institute a broad new definition of the term “fiduciary” and would apply to an individual who provides investment advice or recommendations to an employee benefit plan, plan fiduciary, plan participant or beneficiary, IRA or IRA owner (collectively referred to as “Plans and IRAs”). This is a much more broad and expansive definition than under current regulations, and it would mean that more advisors would be considered fiduciaries when providing services to Plans and IRAs. The changes would also not just affect a broker/dealer. These changes would impact investment advisory activities as well. Under the proposal, investment adviser representatives who currently follow the SEC “fiduciary” standard would be forced to comply with two separate fiduciary rules, one for the SEC and one for the DOL.

When acting as a DOL fiduciary, an advisor would not be able to engage in a “prohibited transaction.” Under the proposed rule, a fiduciary advisor (including the investment advisory firm and any affiliates) receiving non-level compensation would be considered to be a prohibited activity. This is in direct conflict with the compensation that most of our advisors receive today. To preserve the ability of advisors to offer a wide range of commission and advisory products to their clients, the DOL proposal also contains a Best Interest Contract Exemption (BICE) relative to potentially prohibited transactions. Under the BICE, advisors and firms could continue to receive non-level compensation if they contractually agree to act in a client’s best interest, disclose conflicts of interest very early in the prospecting or discussion stages, and make certain fee and compensation disclosures.

Because we do not yet have a final rule from the DOL, there are too many unknowns to start making definitive changes to our processes, client agreements, websites, etc. This does not mean, however, that SSN is sitting idly awaiting the final rule.

Working in close concert with our sister broker/dealers under Ladenburg Thalmann Financial Services, Inc., we have formed an internal, enterprise-wide task force to ensure our advisors are best positioned to react quickly and efficiently to a final DOL rule. Our DOL task force has been working for several months on multiple action items:

  • We are analyzing the potential impact on accounts, assets, and revenue at both the broker/dealer and advisor levels.
  • We are talking with our product sponsors and custodians about compensation options and disclosure information.
  • We are determining the best sources of information to provide expense and revenue disclosures to clients.
  • We are identifying conflicts of interest and beginning to craft a model best interest contract.
  • We have formally engaged a reputable law firm, experienced in ERISA and with the DOL, to provide us direction and counsel on our options and planned actions.

Upon release of the final rule, our DOL task force will focus all of its energy on developing a sound strategy that will allow SSN and our advisors to continue to provide high quality investment advice and service to clients.  We will develop proactive solutions, training, and education for advisors, and we will provide regular communication, conference calls, webcasts, and other updates to keep advisors fully informed.

In addition, SSN and Ladenburg Thalmann are actively involved with the Financial Services Institute, the industry organization leading the charge on the proposal. Richard Lampen, CEO of Ladenburg Thalmann, is Vice Chair for the Financial Services Institute. Mr. Lampen, as well as other executives from Ladenburg Thalmann, SSN, and our sister broker/dealer companies are fully engaged in the Financial Services Institute working group that has been actively engaged in providing ongoing comments and feedback to the DOL, and is now working to develop tools and resources that can be used by all FSI member firm advisors. Legal and compliance executives from Ladenburg Thalmann’s subsidiaries are also involved in industry roundtable groups discussing the rule and its potential impacts, and we are working closely with industry-leading law firm experts.

We are very aware of the impact that the proposed DOL fiduciary rule will have on firms, advisors, and clients. The DOL rule will require an implementation period, during which firms, sponsors, law firms, and other industry experts will provide advice and guidance for compliance with the rule. We are working diligently to ensure our advisors are well positioned to continue to provide high quality investment advice and service to their clients.

Please email Doug Baxley if you have any questions at

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