2016 promises to be the year of the fiduciary . . . the fiduciary rule, that is.

It now seems certain that we will have a final fiduciary rule in effect by the end of 2016.

What will that mean? It will re-write the rules for investment advice and sales to retirement plans and IRAs. The impact will vary, depending upon whether the person making the recommendation is an RIA, a broker-dealer, or an insurance agent or broker.

For example, for RIAs, the greatest impact will be on investment advisers who recommend retirement plan distributions and rollovers and those who receive additional fees (for example, 12b-1 fees) from their IRA investors. On the other hand, advisers of broker-dealers will need to make significant changes in disclosures and compensation practices across the board (that is, for recommendations to plans and IRAs, and recommendations about distributions and rollovers).

Interestingly, the impact on retirement plan sales and advice may be less than is commonly expected. However, the impact on advice and sales to IRAs will be nothing short of revolutionary. Similarly, the “capturing” of IRA rollovers, through recommendations to participants to take distributions, will be dramatically affected.

We will be writing articles about all of that after the final rules are issued. That is likely to occur in the April/May/June timeframe.

One more comment: Much of the attention has been focused on the prohibited transaction exemptions, and particularly the Best Interest Contract Exemption (BICE). However, in my opinion, there has not been enough attention given to the fiduciary standard of care. For example, if an insurance agent recommends an annuity contract, both the financial stability of the insurance company and the provisions of the annuity contract need to be evaluated and a prudence determination must be made. I haven’t seen much said about that. Similarly, the recommendation of mutual funds to IRAs would need to take into account issues such as the quality of the investment management, the prudence of the amount allocated to that asset class or investment category, the reasonableness of the expense ratios, and so on. I think that, once these consequences are fully appreciated, the nature of investment and insurance advice given to IRAs will be materially changed.

That’s it for now. There will be much more in the future.