There’s been a long, almost six year battle over the U.S. Department of Labor’s planned fiduciary rule, originally slated to begin implementation on April 10. The news is – the rule is being delayed at least six months. The Fiduciary Rule would require financial advisors and brokers to act in the best interests of their clients when dealing with retirement accounts.
“Should the rule ever become effective,” CNBC reported, “all financial advisors will be required to recommend what is in the best interest of clients when they offer guidance on 401(K) plan assets, individual retirement accounts, or other qualified funds saved for retirement.”
The term “fiduciary”, by the way, is nothing new to us at Geyer Law. Lawyers are used to acting as fiduciaries for their clients, understanding the obligation to protect the confidences of clients and potential clients and to avoid conflicts of interest that may injure them,” as explained in the William & Mary Law Review (vol.49 Issue 2). . CERTIFIED FINANCIAL PLANNER™ professionals providing financial planning services also must abide by the fiduciary standard, as defined by CFP Board.
So why the big debate, and why did the President believe it important to delay implementing the rule?
The Pros: DOL and some consumer groups say the rule is necessary to protect consumers’ retirement funds and that the rule will lead to consumers paying less in investment fees. A single standard should encompass the entirety of retirement savings world. The main goal of DoL’s proposed rule is to root out conflicted advice. As defined by the Council of Economic Advisers (CEA), advice becomes conflicted when the adviser’s pay is contingent upon an action taken by the saver.
The Cons: The rule is so cumbersome that it will become more difficult for consumers to access advice altogether. Additionally, getting a company’s paperwork, internal processes and personnel “fiduciary ready” is very costly. This overly cumbersome and confusing rule might result in advisers exiting this market altogether, especially for advisers providing services to small businesses with fewer than 100 employees.The exemption requires new clients to sign a contract before any advice can be delivered. Critics feel this would have a chilling effect on an adviser’s ability to do business.
Several major companies have already left part of their brokerage business rather than deal with the expense of compliance with the Fiduciary Rule, meaning that many consumers have lost valued financial counsel. According to the American Action Forum, “The administration says there is good reason to scrutinize every aspect of the rule to determine its full effect on average Americans.”.
