May 2017 - The Fiduciary Rule

The goal of a common fiduciary standard among financial service providers remains stymied in a political morass, but progress continues. This seemingly dry subject is in fact vitally important to household investors.

A year ago we described the Department of Labor’s then newly-released “Fiduciary Rule.” The rule extended the “best interest” standard to encompass broker dealers and others who had previously been held only to the far lower “suitability standard” when making certain recommendations to retirement clients. These included recommendations to roll over ERISA-covered plans (such as 401(k) accounts) to IRA accounts.  The higher standard makes it more difficult, for example, for brokers to defend a recommendation that a client roll over assets from his employer’s 401(k) plan into an investment vehicle with higher fees.

Over the past 12 months brokers, insurers and others lobbied hard, with some success, to delay implementation. But this month the Labor Secretary Alexander Acosta found no legal basis to delay the Rule from taking effect beyond June 9, 2017. Unless the Rule changes again upon review by the DOL, this will require that broker dealers either forgo managing these accounts or adopt new procedures that might substantially disrupt their longstanding business models.

We, on the other hand, as Registered Investment Advisors (RIAs) have always been, and will remain full-fledged fiduciaries to our clients, regardless of the outcome. This “best interest” standard requires that we put our clients’ interests above all others, most notably our own.

So beginning June 9 financial service providers who receive compensation for providing specific investment advice relating to an employer sponsored plan or IRA must comply with the Impartial Conduct Standards. This requires the advisor and the financial institution to:

  • Provide advice that is prudent, meeting a professional standard of care;

  • Operate in the best interest of the client rather than any competing interest of the advisor or financial institution; Charge no more than reasonable compensation; and

  • Make no misleading statements about the investment transaction, compensation, and conflicts of interest.

We have always adhered to these standards, so we anticipate little disruption for our clients. Notably these new restrictions do not create an all- encompassing fiduciary standard; they apply only to retirement clients with ERISA-governed accounts. So most investors will continue to confront confusing legal standards among money managers. We will continue to observe watch as the industry is dragged, kicking and screaming, toward the higher standards of conduct we have always observed.

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Also In This Issue:
Cell Phone Plans and the CPI
Planning for Health Care Needs
Can Savers Boost Risk-Free returns?
The High Yield Dow Investment Strategy
Recent Market Statistics
The Dow Jones Industrials Ranked by Yield
Recommended Investment Vehicles

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