The Push for a Fiduciary Standard in the Finance Industry
Written by: Marty Shields
It was six years in the making but today the Department of Labor released rules on how all financial advisors must begin working with retirement accounts as fiduciaries. There is some complexity to the regulation but at its core what these rules mean going forward is that when advisors provide advice to clients it must be in their best interest. This seems like a commonsensical approach to providing advice but up to this point many advisors simply have been providing advice that was suitable for their clients but not necessarily in their clients’ best interest.
These new regulations deal with both 401(k) and IRA accounts but excludes taxable accounts and they are designed to better educate clients on the fees they are paying. The goal is to move financial advisors away from commissioned based products where the advisor can make anywhere from 6-10% of the value of the investment when the product is sold to the client. There is more than $14 trillion in assets in 401(k) and IRA so these new rules will have a dramatic impact on the financial assets of many people and these rules are some of the biggest changes to the financial industry in the past 25 years. Products such as annuities, high priced mutual funds and privately traded real estate trusts will feel the greatest impact from these new rules.
Under the new regulations, there are some ways an advisor could still receive commission for certain products but the client would need to sign a Best Interest Contract (BIC) where they state they have been explained their options and the compensation the advisor will receive. Firms will be required to acknowledge their fiduciary status and make “basic disclosures of conflicts of interest” by April 2017. They will have until Jan. 1, 2018, to comply with the rule’s other provisions and disclosures.
Steven Bouchey, CFP® has been helping clients for 30 years and in business since 1990. Steven incorporated Bouchey Financial Group, Ltd. in 1995, a SEC Registered Advisor, to act as a fiduciary for his clients and he was one of the early adopters of the fiduciary approach. As a firm, we would rather have all advisors choose to act as a fiduciary for their clients rather than have additional government regulations but these rules will generally benefit individual investors and we support the industry having a fiduciary standard.
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