The purpose of the Department of Labor's fiduciary rule is to prevent the $17 billion a year investors pay in exorbitant fees.

The key provisions of the fiduciary rule will take effect on April 10, 2017 , with a transition period through January 1, 2018. During that time, the last of the detailed disclosures, policies and procedures must be put in place. The fiduciary rule is a big win for all investors, and I am optimistic that the financial advice industry will improve as a result . Serving as chief compliance officer of a registered investment advisor that provides fee-only wealth management, I am so excited to see the word "fiduciary" get all the attention it deserves.

When the rule becomes effective, all financial advisors will be required to recommend what is in the best interests of clients when they offer guidance on 401(k) plan assets, individual retirement accounts or other qualified funds saved for retirement.

The fiduciary ruling is a victory for investors, but the fine print still applies, and I believe you must be aware of everything that's involved.

The BICE acronym was created as a result of the DOL's fiduciary rule. According to the DOL.gov Fact Sheet, the Department's Best Interest Contract Exemption (which some refer to as the BIC or BICE) ensures retirement investors receive advice that is in their best interest, while also allowing advisors to continue receiving commission-based compensation.

BICE requires an insurer, broker or RIA to enter into a contract with clients. The DOL goes on to say in its report that it does not believe a BICE disclosure alone is sufficiently protective of investor rights in the absence of strong standards of conduct and other regulatory safeguards.

For example, an advisor getting paid a commission for investment product sales or receiving higher fees because of a 401(k) rollover recommendation would be engaging in a "prohibited transaction" under ERISA and Internal Revenue Service rules and assessed penalties. The BICE contract allows for variable compensation without triggering penalties; as long as advisors and financial institutions follow certain requirements, they can still charge the same commissions as usual.

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Initially, large brokerage firms were silent after the fiduciary rule was outlined by the DOL. However, this fall they have answered the most pressing question: Would they keep commissions on retirement accounts intact or shift to an entirely fee-based advisory model?

Brokers (commission-based advisors) will need to use a BICE contract with sales to qualified accounts resulting in variable streams of compensation, such as commissions and 12b-1 fees.

The major disruption for these advisors is that investors with such a contract in place will be able to sue their advisors in court if they believe their interests have not come first. The increased liability will push advisors away from a long tradition of charging clients based on transactions, to a compensation method that carries lower liability risks.

Thus, commission-based advisors may have a harder time meeting standards set forth by BICE agreements, and the compliance costs of broker-dealers monitoring their representatives will increase dramatically. According to a recent study from A.T. Kearney, the hardest hit by the DOL ruling will be independent broker-dealers, who stand to lose $4 billion in revenue, or 22 percent, of the industry's total.

In result, the level-fee arrangement or fee-only payment model becomes much more appealing for the industry as a whole. "BICE-lite" was created for the level-fee arrangement or fee-only advisors providing recommendations to 401(k) rollovers to streamline the process. BICE-lite restricts third-party payments, while BICE allows commission compensation and third-party revenue sharing.

(Editor's note: This column first appeared on Investopedia.)

— By Tim Hooker, partner of Dynamics Wealth Solutions

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