The New DOL Rule’s Grandfathering Provisions | Capital Group

Capital Group Policy Spotlight

July 13, 2016

The New DOL Rule’s Grandfathering Provisions

While originally excluded from the draft proposal, a strong grandfathering provision is included in the DOL’s final regulation, which becomes effective in April 2017. This means that under the grandfathering provision, an existing mutual fund that pays a 12b-1 fee would be permitted to continue as is under the new rule.



Clarke Camper


Clarke Camper: The original Department of Labor proposal had no grandfathering provisions. In other words, the original proposal did not differentiate between existing assets on the books as of the date of the new regulation.

Why is that important?

Well, when people for instance, had a commissionable product, for instance let’s say, pay to commission when they bought a mutual fund, say, several years back, the concern which Labor Department wanted to address was that those folks actually, if they were moved into for instance, an advisory platform that is a fee-based platform, they might end up paying twice. They would have paid once for commission for that product and then they would start to pay again in terms of a flat fee, every year, on that particular product.

The Labor Department understood the importance of a strong grandfathering provision and included that in the final regulation. What does that mean? Well, for instance, under the grandfathering provision, an existing mutual fund that pays a 12b-1 fee would be permitted to continue as is under the new rule.

In other words, the new requirements do not apply in any way to that existing product.

Another feature of the grandfather provision is that exchanges under a mutual fund family exchange policy are absolutely permitted under the grandfather and some new contributions under a systematic contribution program also are grandfathered under the provision. Again, the important thing was that Labor wanted to try to minimize disruption for investors and for firms as they move from the old world, if you will, into the new world of the DOL Fiduciary Rule.

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