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The ''New'' Fiduciary Rule

May 19, 2016

Growing Your Wealth

Articles

Ever since the meltdown of the financial services industry in 2008, there has been concern about the standards to which investment advisors should be held. The longstanding rule has been one of suitability; that is, the recommended investment must be suitable for the customer. That sounds perfectly reasonable.

However, one element of the new legislation for increasing the regulatory requirements on financial institutions after 2008 called upon the SEC to investigate whether a higher standard might not be appropriate, a “fiduciary” standard, the highest possible standard. That would require the advisor to put customers’ interests ahead of his or her own interest, and it would bar conflicts of interest. The brokerage industry pushed back hard against any changes to the standards, and the SEC has not yet issued new rules under that mandate.

But five years ago, the Department of Labor began a parallel regulatory project on fiduciary standards. On April 8, 2016, the final regulations were issued, applying a fiduciary rule in the context of retirement plans and IRAs. The new rule takes effect over a period of 12 to 18 months. Under the rule investment advisors to retirement plans and IRAs may have to disclose the sources of their compensation to those whom they advise, and they must always put the customer’s interest first.

Some advisors are worried about the change, because of the uncertainty created and the possible increase in lawsuits should an investment turn sour. But to be clear, the fiduciary rule is not a guarantee of investment success.

Banks and trust departments have generally been supportive of the new DOL rule, or at least have not resisted it. The reason is easy to understand. Trust departments already are subject to fiduciary standards, and always have been. For them the fiduciary rule is not new at all. Banks that have brokerage departments expect to be able to adapt without difficulty for those operations.

Still, regulatory compliance is not cost free. The impact of the change on smaller brokers and financial institutions, coming on top of all the other recent changes in financial services regulation, could be severe. Therefore, there has been a move in Congress to head off the DOL rule, substituting a legislative approach. The outcome of that effort remains uncertain.

(May 2016)
© 2016 M.A. Co. All rights reserved.

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I hope we can get some resolution here.

I liked to invest in the market, but with so many sharks waiting in this pump and dump market, I'm better off sleeping on my cash.

Another fairly recent concern was the stock I had purchased through my employer, with a match, being taken back. I believe was handled illegally.

I got a letter upon my exit, saying I had four ways to handle my investments. One way was to leave it where it was, in 3 particular, hand chosen stocks. They were doing fair, one much better than the others. I chose to leave it where it was.

Shocking then, when I was sent a letter that said they weren't going to offer that higher paying stock any longer, as it was one of its lowest producing...really? I had proof of something different. The other two were still available.

Can you believe that they took my money and put it in a .05 baring money market account, when it was making 13% on the stock I had chosen? How is that even possible?

I think there was some nasty play going on behind the scene. How can I believe any different? How can we begin to trust these crooks with our retirement funds, when they do what they can to take all you have? We can't win!

I'm all for tight regulation and transparancy. If they can't do the right thing...

This blog article is for informational purposes only, and is not an advertisement for a product or service. The accuracy and completeness is not guaranteed and does not constitute legal or tax advice. Please consult with your own tax, legal, and financial advisors.