Fiduciary Rule Offers Enhanced Standard of Care for Consumers


Until now, most conversations about the Department of Labor’s fiduciary rule have centered on how it will affect those who work in the financial services industry. Now that it’s being implemented (initial implementation kicked off on June 9, 2017), some of that focus should finally turn to its impact on consumers. This should be interesting because many consumers don’t even know what’s coming, despite industry protests that make it sound as though we’re gearing up for Armageddon.

In a Harris Poll conducted in March on behalf of Personal Capital, a digital wealth management firm, 46% of respondents said they believed all financial professionals are legally required to always act in their clients’ best interest. Another 31% were unsure whether this was the case. Imagine those individuals’ surprise, in the next few weeks and months as their financial services professionals tell them that, uh, no, that wasn’t quite the case before – but it is now, and they can’t wait to be transparent about transactions, compensation, and conflicts of interest when discussing their retirement.

When it comes to managing your retirement accounts (those funded with pre-tax money, such as your 401(k), SEP plans and IRAs), your financial services professional will be ethically and legally bound to focus more on your success than their own. This level of responsibility is nothing new — it dates back to an 1830 court ruling and the formulation of a “prudent person standard of care,” which requires someone acting as a fiduciary to do what a prudent person would do and to not take advantage of a client. Congress also has drawn distinctions between broker-dealers, who were regulated as salesmen under the Securities Exchange Act of 1934, and Investment Advisor Representatives, who were regulated under the Investment Advisers Act of 1940. And yet, somehow these distinctions have become blurred over the years.

Most financial services professionals have been working under the less rigorous suitability standard, which requires only that they recommend products that meet a client’s financial objectives; the products they offer don’t have to be the in the client’s best interest. They may be licensed to sell stocks, bonds, mutual funds or insurance products but not to give investment advice. And their clients might never have known it. It’s kind of shocking that we’ve gone so long without exposing the difference – or raising expectations. Instead, we’ve put the burden on the individual to figure it out. But the world of finance just keeps getting more complicated. With employer pensions going away, putting retirees largely in charge of their own future financial security, people need help. And they need to be able to trust that it’s good help.