On April 6, the federal Department of Labor announced major changes to what’s known as the “fiduciary standard.” As Business Report details in a feature from its new issue, under the new rules—six years in the making—a lot more professionals who give retirement investment advice will be legally required to advise based on what’s best for the client, not what benefits the adviser who might be selling something.
“It’s a very simple principle,” said President Barack Obama at the AARP. “You want to give financial advice, you’ve got to put your client’s interests first.”
Simple in theory, maybe. But, as is usually the case when new regulations are proposed for any industry, those targeted by the new rules are worried about unintended consequences.
“We’re really confused about what’s actually going to go down with [the new rules],” says Chad Olivier, whose Baton Rouge firm, The Olivier Group, specializes in retirement planning and wealth management.
As a certified financial planner, Olivier already was a fiduciary. But the new rules still might complicate his business. Say he recommends a particular fund that he knows well. If there’s a similar fund that costs less, will he be accused of breaking the rules, even though he was acting in good faith? Olivier isn’t sure.
Most fee-based retirement advisers already were held to the fiduciary standard. The new rules focus on those who earn commissions and previously had been held to the much less-stringent “suitability standard,” which basically means the investment can’t be completely ill-suited but might not be the best option for the client.
The Department of Labor says “backdoor payments” and fees hidden in the fine print are hurting the middle class, while conflicts of interest cost investors $17 billion every year. The department wants to increase transparency and reduce conflicts of interest for financial advisers working with 401(k) and individual retirement accounts.
Read the full feature. Send your comments to editors@businessreport.com
