The Public Will Uphold The Fiduciary Rule Even If The DOL Won't

 

Two years ago, if asked what a fiduciary was in the financial services industry, the majority of the general public would have drawn a blank. Today, news surrounding the Department of Labor's (DOL) new Fiduciary Rule has become so mainstream, that personal finance clients not only know what it means to be a fiduciary, but are also demanding to work only with fiduciaries. For financial services providers, this means they may have to uphold the fiduciary standard regardless of the DOL's rule.

 

Breaking Down the Fiduciary Rule

 

A fiduciary in its broadest form is defined as a person or entity which is bound by duties of good faith and trust to act in another's best interest, even if doing so is not expressly in the fiduciary's best interest. In the financial services industry, a fiduciary must manage his or her client's assets to the client's benefit as opposed to for the fiduciary's own profit.

 

Currently, without the rule in place, advisors who are considered "securities brokers/dealers," "financial planners," "agents," "insurance agents," or "benefits consultants" are held only to the suitability standard.

 

The suitability standard maintains that advisers recommend only "suitable" investments for their clients, as opposed to actively putting their clients' best interests first. As long as the investment meets the client's stated objective and needs, it can be considered suitable. This leaves open room for advisors to act in their own best interests while providing "suitable" recommendations.

 

Registered Investment Advisors (RIA) are the only financial advisors who already act in a fiduciary regard. Under the new Fiduciary Rule, all investment professionals ‐ brokers, planners, and insurance agents, as well as RIAs ‐ will be held to the fiduciary standard when making financial recommendations for retirement accounts.

 

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