Department of Labor – Fiduciary Rule

The Department of Labor Fiduciary Rule

In 2016 the Department of Labor released its final rule amending the definition of a fiduciary on retirement accounts. This proposal, often called the “Conflict of Interest Rule” or “Fiduciary Rule,” requires all financial professionals who work with retirement plans or provide retirement planning advice to act as a fiduciary. Being a fiduciary requires a financial professional to act solely in the best interest of his or her client, putting their client’s interest before their own at all times. A fiduciary is both legally and ethically required to meet the requirements of this status. This is a much higher obligation to abide by than the suitability standard that is still widely used in the industry. This new rule is scheduled to be phased in starting April 10, 2017.

Fiduciary vs. Suitability Standard

Under current Department of Labor rules, certain financial services professionals can operate using the suitability standard. The suitability standard is very straight forward. As long as an investment recommendation meets a clients’ defined need and objective, it is deemed suitable for the client. This is drastically different from the fiduciary standard, which requires certain financial professionals to consider more factors when providing financial planning and investment advice. The proposed fiduciary rule would legally require all financial professionals servicing retirement accounts to act using the higher obligations of the fiduciary standard as opposed to the suitability standard. As fiduciaries, financial professionals would be required to serve their clients best interest at all times and would no longer be able to offer “suitable” investments that may or may not be in the client’s best interest. The new rule would have a major impact on financial professionals selling products with high commissions and fees because these products typically do not serve the best interest of the client.

What’s Happening Now

On February 3, 2017, President Trump issued a memorandum that tasked the Department of Labor with re-examining the proposed rule. During this re-examination process, the DOL are focusing on “whether the fiduciary rule helps or harms investors, is apt to lead to excessive disruptions in the retirement services industry that could harm investors, or is likely to give way to excessive lawsuits.[1]” This re-examination will culminate with the DOL deciding whether or not this proposed rule does more harm than good. If it finds more harm will be done by implementing this rule, the DOL has to rescind or revise the rule.  This could potentially result in a delay of the rules implementation by 180 days.

What Does This Mean for You?

The new rule will have an impact on the financial services industry as a whole as it aims to help investors get a higher level of clarity and service. For you, our client, nothing is changing. HCR Wealth Advisors has been operating under the fiduciary standard since inception. We will continue to offer financial planning and investment advice that is solely in your best interest.