Fiduciary Fuss

March 11, 2016 in Fiduciary Responsibility

Fiduciary rule will change the landscape...for some. 


No doubt you have heard something about the new “fiduciary” rule which will require many investment advisors who traditionally were not required to serve in a fiduciary capacity to raise their standard of care.  Barring a significant upset, the rule will be finalized this year.  A little background information may prove helpful as the rule moves into its final stages (and the media attention hits a crescendo).

Intent and Background of the New Fiduciary Rule

The new rules generally target investment advisors who sell securities for a commission.  Commonly known as “brokers”, these advisors are not fiduciaries to their clients.  They are not providing investment advice…..they are selling products.  The intent of the rule is to have all investment advisors put the best interests of their client above their own financial interests.  The Obama Administration feels that the rule would protect workers and retirees from conflicted financial advice that increases investment fees and erodes savings.  There are many objections to the rule but critics generally feel it is too complex and costly thus forcing brokers to abandon savers with small accounts.

Originally proposed in 2010, the objections were so fierce that the DOL withdrew its initial proposal and went back to the drawing board.  Fast forward five years and the proposed rule was re-released in April of 2015 for public comment.  Here is a link to the official “fact sheet” from our friends at the Labor Department.  On January 28th of this year, the DOL sent the final rule to the Office of Management and Budget (OMB).  Once released by the OMB (they have 90 days) it is going to face opposition from Congress but the Obama administration has said they would veto any legislation attempting to change it (and there is not enough backing to overturn the veto).

Big Changes are on the Horizon for Some Investment Advisors…

Expanding the scope of who has to operate under a fiduciary standard is a big change for some.  It has caused significant angst within the retirement services industry led by the insurance companies and large brokerage houses.  The DOL received 3,530 substantive comment letters on its proposal (more than ten times the amount it received in 2010).  In addition, 281 Members of Congress have raised concerns regarding the proposal.  The lobbyists are working hard.  

As evidenced by the name of our company, Fiducia Group serves in a fiduciary capacity and takes pride in the fiduciary support we provide our clients.  We founded our company under the premise of putting our client’s interests above our own.  We struggle to understand what all the fuss is about…  Whether the new rule achieves the desired goal remains to be seen.  Rule or no rule, it is our hope that employers would still engage in prudent process and select an investment advisor that agrees to serve their retirement plan as an ERISA fiduciary.  If you are not sure if your current advisor is serving in a fiduciary capacity, review your agreement with them and see if they acknowledge their role as a fiduciary for investment selection.  If they do not acknowledge it, we would encourage you to find one that does.   

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