In 2016, the Department of Labor (DOL) issued new rules expanding the fiduciary standards of care to all advisors who manage clients’ retirement accounts. These new rules were designed to protect the financial consumer, and were set to be in place by April 10, 2017. But, as you may have seen in the news, a recent memorandum was issued by President Trump which has halted the implementation—and may ultimately kill the new rule altogether.
What Exactly IS The New Rule?
The simple answer is that it really boils down to eliminating the discrepancy between a “suitability” standard of care and a “fiduciary” standard of care in the investment community.
Currently, financial advisors who work for a broker-dealer are only held to a suitability standard of care. Effectively, this means that as long as an advisor’s recommendation is deemed “suitable,” the duty of care to the client has been met. However, often what is a “suitable” investment recommendation can differ significantly from one that is actually in a client’s best interest. A “suitable” investment may still be riddled with conflicts of interest and unnecessarily high fees and commissions.
A fiduciary standard of care dictates that any recommendation to a client needs to be in the client’s best financial interest.
Who Would Be Impacted By This Rule?
If this rule were to take effect, it would directly impact advisors who work for broker-dealers (i.e. banks, brokerage houses, insurance companies, stock brokers, etc.), as many commission-based investment vehicles may be suitable, but not always in the best interest of clients.
Updates or changes to the proposed fiduciary rule will not change Capital Advantage’s standard of care to clients.
As a Registered Investment Advisor (RIA), Capital Advantage is not affiliated with a broker-dealer. RIAs are governed by the Investment Advisors Act of 1940, which holds registered individuals and firms to a fiduciary standard of care. Since its founding in 1982*, Capital Advantage has upheld the legal obligation to protect the best interests of our clients, regardless of account type.
For now, the investment community will continue to watch with interest as the debate unfolds to see if the DOL’s proposed new rules will take effect. At Capital Advantage, we will continue to put our clients first and maintain our high fiduciary standard of care.
*President John Hayman, CFP® began business in 1982.
