Practice Management

Technology-Committed Firms See a Lot to Like in DOL Fiduciary FAQ

Attorneys and executives working for robo advice technology providers suggest the DOL fiduciary rule—as enumerated by the new FAQ publication—paves the way for their approach to succeed.

By John Manganaro | October 28, 2016
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Seth Rosenbloom, associate general counsel at Betterment for Business, an increasingly prevalent robo-adviser in the 401(k) market, says the new Department of Labor Fiduciary Rule FAQ publication “doesn't break any new ground.”

While the document is undoubtedly going to be valuable reading for anyone working under the Employee Retirement Income Security Act (ERISA) and hoping to comply with the revamped fiduciary standard, it does not seem to signal any real change of intent or timing on the part of the DOL.

“These clarifications show that the DOL did not cave to any pressure from firms that sell their own products to soften the rule,” he suggests. “Rather, the DOL is holding firm in its intent to make sure the rule protects the best interests of investors while tacitly, and not so tacitly, paving the way for independent robo advisers to succeed.”

Rosenbloom says the fact that the DOL has not taken any real steps to soften either the fast-approaching implementation deadlines or the challenging requirements to comply with the Best Interest Contract (BIC) Exemption—among other key exemptions—is a bit of a surprise, given the strength of industry lobbying in the last year.

“We've heard reports that the Department of Labor was being lobbied to soften the definition of a ‘level fee fiduciary,’ for example, so that firms that recommend proprietary funds would qualify,” he explains. “If so, the DOL stood up to these efforts and made it clear that it believes that investors are best served by truly independent fiduciaries who don't financially benefit from recommending their own funds.”

Rosenbloom points to FAQ Question 9 as a telling example, which suggests “The touchstone [of fiduciary responsibility] is always to avoid structures that misalign the financial interests of the adviser with the interests of the retirement investor.”

He adds that the FAQ underscores the fact, time and again, that “incentives matter.”

NEXT: A boost to technology providers and robo adopters?