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February 17, 2017 at 03:26 AM
President Trump has signed an executive action directing the Department of Labor to review its new fiduciary rule, which had been scheduled to take effect April 10 (see DOL Files to Delay Fiduciary Rule). The rule was designed to ensure that recommendations made by financial advisors to their clients regarding their retirement accounts are always made in the best interests of the client, without any conflicts of interest. The new rule was going to require that advisors who work with retirement plans operate under a new, higher fiduciary standard which will better align advisor compensation with the client’s best interests.
Despite Trump’s order, many firms have indicated they will go through with the changes they’ve been enacting to comply with the spirit of the DOL fiduciary rule, whether the rule gets implemented or not (see Bogle: ‘Fiduciary Principle Will Live On’ No Matter What). Indeed, client expectations that advisors should adhere to the best-interest standard has already seeped into the public’s consciousness.
This trend toward lowering fees and limiting commission-based retirement accounts will likely continue, as will the movement toward greater transparency around compensation and renewed efforts to avoid inherent conflicts of interest. In the end, these developments are positive for the industry as they will build greater faith and credibility in the advisor.
For RIAs, there’s good news. They are already under the fiduciary standard – so enacting the rule or rescinding it doesn’t change their status. RIAs have had this higher standard in place all along and will continue to operate as such.
Shining the light on this greater standard of care actually helps differentiate RIAs. They can tout their exclusivity in the marketplace as advisors who already adhere to the fiduciary standard and already always act in their clients’ best interests. It’s always been part of their DNA.
What You Should Tell Your Clients
With all the media attention surrounding the fiduciary rule – will it be enacted or won’t it – clients may have questions about all the hubbub. They understandably might be asking, “If you haven’t been acting in my best interests, in whose best interests have you be acting?”
As an RIA, you can tell clients, “Adhering to this higher fiduciary standard is nothing new for us – we have always had this high standard in place for all your accounts.”
You can explain to clients that a ‘fiduciary’ who manages an investor’s assets has a legal and ethical obligation to put the investor’s interests first, which means helping the investor make decisions in his or her best interests. Explain to them that this fiduciary standard has been your firm’s core mission all along.
