It’s probably not hyperbole to say that the new U.S. Department of Labor fiduciary rule is completely changing the financial services sector.
The rule, which started implementation on June 9, is altering the way many annuity salespeople do business.
Unless your head has been in the sand, more than likely you are aware that the DOL fiduciary rule now requires all financial professionals to adhere to a fiduciary duty when servicing client’s qualified retirement assets.
This means that financial professionals must disclose any existing conflicts of interest, disclose compensation, and make recommendations that are in the client’s best interest. This is a heavier burden than existed under the previous suitability standard and requirements. If you are in the financial services business, don’t underestimate the difference this rule makes on how you conduct business and the increased liability you now take on.
Many people have assumed that all financial advisors were required to put client interests first all along. However, for many people who sell annuities, this has not been the case at all. There is a big difference between the legal responsibility of acting as a fiduciary vs that of the suitability standard.
With the suitability standard, a salesperson could recommend an annuity as long as the recommendation met a client’s general needs and objectives and it would be considered a suitable recommendation. But just because it was a suitable recommendation, does not mean it was the best recommendation for them.
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A “fiduciary duty” is the highest standard of care for financial professionals. This means that those acting as a fiduciary have a duty to act in a client’s best interest, to eliminate all possible conflicts of interest and to disclose those that cannot be eliminated. If the financial professionals required to uphold a fiduciary duty are found to have put their own self-interests first, it’s possible that they’ll be liable for any ill-gotten profit or damages.
Until June 9, the higher fiduciary standard only applied to a select group of financial professionals who held specific securities registrations, including the Series 65. After June 9, the fiduciary standard applies to all financial professionals providing advice or recommendations relating to ERISA plans or individual retirement accounts.