Posted on June 22, 2017 in

The Fiduciary Rule: What it means for you (and what it doesn’t)

When the Department of Labor’s Fiduciary Rule was first proposed, it had the potential to shake up the industry. Retirement savers would finally be protected from financial advisors who put their own interests ahead of their clients.

All Financial Advisors who manage 401(k), 403(b) or IRA’s would finally be pushed onto the same side of the table as the retirement saver by being forced to act as a Fiduciary. The days of “me-first” brokers and high commission product pushers appeared to be behind us.

Then the Fiduciary Rule’s fatal flaw was revealed: The Best Interest Contract Exemption (or BICE). Essentially, this exemption can simply be buried within the pages of an advisor’s lengthy contract, and with a few strokes of the pen, all of those commissions and high fees will continue to flow freely back to the advisor without consequence.

Does the new exemption somehow morph this advisor into the role of a true Fiduciary? We’ll look to the Investment Advisors Act of 1940 to give us some guidance on this question. Registered Investment Advisors “RIA’s” governed under this act have long been held to a strict fiduciary standard of being required to put the interests of the client before their own. This leaves no room for an advisor to mislead the client or to push high-fee, high-commissioned “investment products” that benefit the advisor’s wallet far more than the person working hard to save for retirement.

In contrast to the standards RIA’s have been held to, brokers have long been regulated by the Financial Industry Regulatory Authority (FINRA), which simply holds them to a liberal standard of “suitability”. This definition is open to much interpretation, and has led to much arbitration as well.

However, by signing the Best Interest Contract Exemption (BICE), investors are essentially agreeing to let them continue to sell commission-based products while still staying within the loose constraints of the new Department of Labor Fiduciary Rule as opposed to the much more stringent Fiduciary definition laid out under the Investment Advisors Act of 1940.

So if you are saving for retirement in your IRA, ask your advisor if he or she is a Fiduciary. If the answer is no, they may not be looking out for your best interests. If the answer is yes, you should consider asking them to put that in writing.

If you work for a small or medium-sized business, and save money in your 401(k) or 403(b) plan, you may want to suggest to the HR department that they ask the plan’s advisor the very same thing.

There are enough challenges out there facing today’s workers when it comes to saving for retirement. Getting investment advice that puts your wealth growth first should not be a challenge.

Remember, your quality of life during retirement depends on the decisions you make while you work.

Source: USA Today