How the DOL Fiduciary Rule Could Affect You

The regulatory environment in the financial services industry continues to change, and it’s been interesting to watch lately! If you didn’t know, the Department of Labor (DOL) new Fiduciary Ruling is set to take effect this week, on June 9th. Originally created under the Obama administration, the rule has been a hot topic of debate among financial professionals for years. The debate is far from over, but it appears as if the industry is being forced to move forward.

What does this mean to you, as a consumer of financial products? The new ruling requires all financial professionals to operate under a “fiduciary standard.” Believe it or not, this is a significant change to the industry. An article found on Investopedia explains this well:

“Fiduciary is a much higher level of accountability than the suitability standard previously required of financial salespersons, such as brokers, planners and insurance agents, who work with retirement plans and accounts. “Suitability” meant that as long as an investment recommendation met a client’s defined need and objective, it was deemed appropriate. Now, financial professionals are legally obligated to put their client’s best interests first rather than simply finding “suitable” investments. The new rule could therefore eliminate many commission structures that govern the industry.”

Read more: DOL Fiduciary Rule Explained as of May 23, 2017 | Investopedia

I would observe that most of the financial professionals that I know, operate with their clients’ best interests at heart, and always have. The new ruling cannot change an individual’s ethics. What it will do is seek to make it easier for you, the consumer, to quantify and confirm this elusive measurement. Advisors are required to disclose to you any potential conflicts of interest, fees, and/or commissions under the new ruling, so you can see them in black and white, and hopefully discuss them with those you do business.

Overall, I believe this is a good thing. The plans that will be affected (at the moment, only retirement plans fall under the new ruling) haven’t seen an update to the regulations since ERISA (enacted in 1974). Financial services and products – to say nothing of people and their investing behavior – have certainly changed since then! Furthermore, I believe the new ruling seeks to clarify what most consumers probably assumed was being done already – to put clients’ best interests first. It’s expected of medical doctors and lawyers; why shouldn’t it be the standard for financial advice, as well? Other professional groups agree; the CFP Board and the Financial Planning Association (FPA) have spoken in support of the ruling.

At Shadowridge, we have always operated as a Fiduciary for our clients since our formation, and have been proud do to so. We chose the business structure of an RIA (Registered Investment Advisor) to escape the Broker/Dealer commission structure and operate in a way which we preferred, to benefit our clients. We do not see the cost of our compliance changing as a result of the new ruling, nor do we anticipate raising our fees in the near future. We always strive to provide a fair price for what we do for our clients.

At the moment, the new DOL ruling only affects retirement plans. As if it weren’t confusing enough, the Securities and Exchange Commission (SEC) could, if it chooses, release its own set of rules which would extend beyond these plans and govern the way in which financial professionals treat clients in all dealings. New SEC Chairman Jay Clayton just released a request for comment about fiduciary duty as both the DOL and SEC continue to grapple with this topic.

It’s an exciting time in the industry and for us all. I’m sure more information will be forthcoming! Stay tuned… and of course, feel free to contact us with any questions.