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The News of the Death of the Fiduciary Rule Was Greatly Exaggerated

January 02, 2018

Posted in Civil Litigation, Uncategorized

Despite criticism by the President during his campaign about the fiduciary rule (as it applies to retirement investments) and his claims it would be stopped, the federal Department of Labor largely put it into effect on June 9, according to The Oregonian. Though like any rule or regulation, it may not live forever. If you’re making retirement investment decisions you may want to enjoy it while you can.

The rule was first put together by the Obama administration with the goal of trying to protect retirement investors from high costs and conflicts of interest by financial planners. The rule was delayed earlier this year after President Trump asked the Department of Labor to reevaluate the rule and the review is expected to last through January. Large sections of the rule are now in effect.
Why should you care about this?

Your financial advisor needs to act in your best interest, which is partially the definition of a fiduciary: a party putting your best interest ahead of his or her own, someone who can’t “self deal” (benefit him or herself to the detriment of the client).

Your financial advisor may or may not have acted as a fiduciary in the past. This would’ve been a decision on their part not only to provide better service but as a means to separate him or herself from others in the crowded financial planner industry. Now those working with retirement savings have no choice. Prior to this rule an advisor could sell you something that’s “suitable” for you (though it may generate high commissions), now that type of investment has to be in your best interests (though opinions may differ on exactly what that is).

Fees and costs should be more transparent. They have gotten more attention because over many years they could take a substantial bite out of your retirement savings. Financial firms and advisers now have impartial conduct standards which limit what advisors and firms can charge to “reasonable compensation.”

The rule bans misleading statements about transactions, compensation and conflicts of interest. As a result you should see more disclosures and paperwork outlining fees and commissions. The rule should also result in the elimination of high cost but low performance investments out of retirement accounts.

Like any government rule or regulation, no matter how well intended, it’s not a magic bullet. You should be vigilant when it comes to your investments, fees, charges and costs. The rule currently only applies to retirement assets and the advice a financial planner can give, it doesn’t apply to IRA accounts you management yourself.

Even though a financial planner is acting as a fiduciary, that rule doesn’t require a financial planner to know what he or she is doing. Virtually anyone can call themselves a financial planner. Do the best you can to choose who manages your money wisely and work with one who matches your investment philosophy and who understands your goals. Make sure you understand what fees and costs you’ll be paying your adviser and for your investments.

Whether or not your financial advisor is calling him or herself a fiduciary or whether or not this rule applies to your situation, if you think you’re the victim of fraud by an financial or investment advisor, contact our office so we can talk about your situation, the laws that may apply and what you can do to protect yourself and try to recover your losses.