For months, we watched the development of (and debate about) the pending Department of Labor fiduciary rule with great interest. With the government finally taking action to provide greater consumer protection for assets in retirement accounts, we are celebrating. Why celebrate now?
At Inspired Financial, a Registered Investment Advisor, we must adhere to a fiduciary standard of care laid out long ago (by the Investment Advisor Act of 1940, in fact). Also, we employ Certified Financial Planners which, according to the CFP Board, must act as fiduciaries for our clients. This means we must act in the best interests of our clients. Now, the government has directed that all “advisors” must also act in a client’s best interests, but only for their retirement accounts.
Until now, many investment advisors have only been held to a suitability standard. This means they should make reasonable efforts to obtain information concerning a client’s financial situation, tax status, investment objectives, risk tolerance and any other information considered to be reasonable. With the new rules, retirement accounts managed by advisors must be held to a higher standard, that of a fiduciary.
The final version of the rule requires advisors to act in the best interests of their clients when giving retirement advice. Firms also have to eliminate incentives that could compromise the objectivity of their advisors. Some see this as a “seismic overhaul of the retirement advice space.”1
How does this new rule help the consumer? Some products recommended by advisors generate large commissions, which usually come from investment returns. President Obama asserts that requiring advisors to act in the best interests of their clients will protect workers and retirees from being sold high-fee investment products that erode their savings.2
If you have accounts with advisors that receive commissions, the DoL rule allows any ongoing commission payments to continue – as long as the advice was provided prior to enacting new rules in 2017. Any continuing contributions can continue without being subjected to new rules. However, any new recommendations to existing clients for new additions to existing commission-based investments will require a Best Interests Contract Exemption once the rules take effect. Good to know!
At Inspired Financial, we are fiduciaries for all our clients’ accounts. We act in their best interests and we receive fees only from them, thus minimizing any conflicts of interest. Under the new DOL regulations, many more investors will have the same assurances for their retirement accounts and that is a cause for celebration!
If you have retirement accounts managed by other advisors, please contact us if you have any questions. Key provisions of the rule will take effect on April 10, 2017, with a transition period through January 1, 2018.3
1. Fiduciary Rule: No Time to Waste in Prepping for Changes, by Kenneth Corbin, March 11, 2016
2. Investment News: A DOL fiduciary rule everyone can live with, April 10, 2016
3. Advisors’ Guide to DoL Fiduciary And The New Best Interests Contract (BIC) Requirement by Michael Kitces, April 11, 2016
Guest Post by Laurie Dubchansky