On April 6, 2016, the Department of Labor (DoL) issued its fiduciary rule, which we consider a major step forward for the world of professional financial advice.  The rule states that brokers can no longer earn commissions and other forms of conflicted advice compensation from consumers, unless they agree to do so pursuant to a Best Interests Contract (BIC) agreement with the client.  This BIC agreement commits the broker who chooses to give advice to a fiduciary standard, meaning that the advice given must be in the best interests of the client.  And further, the broker must give disclosure, and be transparent, about the products and compensation involved.

This rule has caused quite the stir on Wall Street, and among all manner of financial institutions and “advisors”.  The most vocal and primary critics of the DoL fiduciary rule are those firms which stand to lose the most through the implementation of the rule.  These firms are primarily brokerage firms, represented by the Securities Industry and Financial Markets Association, or SIFMA, and the insurance companies who specialize in annuities, represented by organizations such as the National Association for Fixed Annuities, and the American Council of Life Insurers.


Both personally and professionally, we applaud this rule.  We have chosen to serve as fiduciaries to clients, including retirement plans, and co-fiduciaries to plan trustees, for many years.  We embrace this role, as we believe it serves clients well.  Of course, our business is the giving of professional advice, and related administrative and management services.  Our business is specifically NOT the selling of financial products.  


The fiduciary rule was to have gone into effect on April 10th, 2017.  Last Wednesday, the DoL delayed implementation for 60 days, until June 9th.  While the rule and its implementation have become a political football, we fully expect the rule to become law.  Whether brokers like it or not, and they don’t, societal and cultural trends, as well as legislation and regulation, are demanding transparency, full disclosure, and professional financial advice that is distinct and separate from the placement of products.


Note that this DoL fiduciary rule has expanded the application of the fiduciary standard to IRAs, and not just to retirement plans, which have long been the DoL’s primary focus.  However, as noted above, we expect the trend toward a fiduciary approach regarding financial and investment advice to continue, regardless of the tax status of the assets or cash flow in question.


One challenge for consumers though, is gaining clarity on the scope and use of the word “fiduciary”.  The DoL ruling in question mandates that those advisors interacting with retirement plans and IRAs put the client’s interest first.  For decades though, anyone offering advice to retirement plans has been held to a fiduciary standard.  


While in our opinion enforcement of this fiduciary standard for those offering advice to retirement plans has been lax in past decades, the DoL has been stepping up its enforcement activity over the last ten years or so.  This is as it ought to be, as far as we are concerned.


For those who have responsibility for retirement plans, they have begun reading and hearing more about their role as fiduciaries over the last several years, even before the introduction of the current rule.  Within the context of a retirement plan subject to ERISA, there are roles as fiduciaries defined by ERISA Sections 3(16), 3(21), and 3(38).  We will cover these in more detail in future commentaries.

Quote of the week:

“Stewardship is the hallmark of life on earth.”


                                                                        Sunday Adelaja






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Comment   |  1 year, 1 month ago from Suwanee, GA