Fiduciary Rule Could Be Squashed. What Does That Mean For You?

This past week the Trump administration moved to roll back the so-called fiduciary rule (also known as the DOL rule with its origin from the Department of Labor). The rule was slated to take effect in April. The aim was to hold investment brokers working with retirement savings accounts to a fiduciary standard. Under the fiduciary standard, brokers would be required to make investment decisions only in the client’s best interest, and to avoid conflicts of interest that commission based products can create.  Makes a lot of sense right?

For investment advisors such as Advisors Capital Management there is already a fiduciary standard requirement with Securities and Exchange Commission (SEC).  As a client or prospective client, I hope there is comfort in knowing that our firm practices the fiduciary standards set forth under the Investment Advisers Act 1940.

Here is where the Department of Labor may have overreached its responsibility and as a result the rule is being targeted.  With a few modifications, I believe the existing SEC fiduciary rules could have been adapted for brokers as well.

As a fiduciary under the Investment Advisers Act, registered investment advisors such as ACM must avoid conflicts of interest with clients and are prohibited from overreaching or taking unfair advantage of a client’s trust.  A fiduciary owes its clients more than mere honesty and good faith alone.  A fiduciary must be sensitive to the conscious and unconscious possibility of providing less than disinterested advice.

In the end it’s up to you to ask the following questions to assure that your advisors are working in your best interest:

1.  Are there any conflicts of interest in proceeding with this product or service?  And is this decision in my best interest?
2.  How will you (the advisor) be compensated based on this decision?
3.  Are there alternative solutions that might have more attractive fees?
4.  Are there any additional costs that might not be apparent beyond the advisor’s compensation?

If the DOL fiduciary rule does not survive, the SEC has an opportunity to be the lead agency and create sweeping supervising rules for brokers. This would make a lot of sense and could put in place much of what was good about the rule.   In preparation for DOL, financial firms have spent millions of dollars getting their brokers and procedures into compliance.  Much of this will not be undone in my opinion.  But in the end, your vigilance in asking the right questions about compensation and fees will always be your best assurance that everyone is on the same playing field.

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