One Simple Step to Get Sound Investment Advice


One Simple Step to Get Good Investment Advice

You don't have to wait for the Labor Department to enact its new fiduciary rule. Make your adviser sign the pledge at the bottom of this column.


By now it's certainly no surprise that the Department of Labor has issued its long awaited missive on fiduciary duty. With over 1,000 pages, there is a lot to absorb; however, I believe the DOL has done a Solomon-like job of streamlining, simplifying and clarifying the rule. Although, like many other supporters of the fiduciary concept, I would have liked to see something stronger, I do believe the actions of the DOL will absolutely make the system fairer.

See Also: Retirement Savers Get New Legal Protections

The result is amazing and to be applauded, especially given the realities of today's political constraints. Multiple millions of dollars have been spent lobbying against the implementation of a DOL rule. Michael Piwowar, a commissioner of the Securities and Exchange Commission, opines that the rule "seems to ignore the chorus of voices that questioned whether it will restrict middle-class families' and minority communities' access to professional financial advice by making retirement advice unaffordable." Senator Johnny Isakson of Georgia stated, "This fiduciary rule will harm countless Georgians who have worked hard to make sure they make wise financial decisions for their families' futures. For families across the country, this rule is essentially the Obamacare for retirement planning, and I will do everything I can to overturn this rule."

The argument that small investors (i.e. the "countless Georgians") will lose access to advice is balderdash. First, brokers do not provide advice. If they did, they would have to do so as investment advisers and would already be held to a fiduciary standard. Second, there is a large universe of fiduciary advisers who are ready, willing and able to provide substantive advice. Third, as we've already seen, traditional commission-based platforms will quickly find a way to continue to operate under the new rule; for example, see LPL Cuts Prices, Account Minimums Ahead of DOL Fiduciary Rule.

In fact, firms are provided significant latitude in how they adhere to the new rule. As the DOL noted, "Rather than create a highly prescriptive set of transaction-specific exemptions, the Department instead is publishing exemptions that flexibly accommodate a wide range of current types of compensation practices, while minimizing the harmful impact of conflicts of interest on the quality of advice."


However, the rule does have its shortcomings. While IRAs may be subject to fiduciary standards, the old suitability standard—with all of the potential conflicts of interest—will still hold true for non-IRA accounts.

Also, advisers can expect to hear more from their compliance officers. Under the current suitability standard, if there is a dispute, the ultimate responsibility for proving the claim rests on the shoulders of the client. Under a fiduciary standard, the responsibility shifts to the adviser. This is a distinction not lost on compliance departments. As a consequence, I believe the enforcement of fiduciary standards will not be a result of detailed rules and micro-managing regulators, but rather the actions of firm compliance departments and ultimately the results of arbitration and court rulings.

I believe the DOL rule is a seminal event that will significantly improve the investment outcome of individual investors for decades to come. My friend Bob Veres, publisher of Inside Information and longtime industry observer, best summed it up:

"…overall, the new rule fundamentally (and with pretty [much] zero exception) requires the broker… to act as a fiduciary. That brings a lot of people into the principles-based universe, which is alien territory for the brokerage firms… My take is that the DOL was a bit sly about its concessions, making it harder for the wirehouse arguments to prevail in court should there be (as I think there WILL be) a legal challenge to these provisions.


That means that this is a milestone for the planning profession, a stake in the ground further than anyone has gone before in the fiduciary requirement space."

Finally, as legislators, businesses and the courts go about interpreting and implementing the more than 1,000 pages, individual investors might happily ignore the activity by simply having their advisor sign the Committee for the Fiduciary Standard's mom-and-pop fiduciary oath (see below or click on the link for a printable version of the oath). With that signed and in hand, you will at least know that your relationship with your adviser is structured so that your interest comes first, even with your non-IRA accounts.

See Also: How to Pick a Financial Planner

Harold Evensky, CFP, is Chairman of Evensky & Katz, a fee-only wealth management firm and Professor of Practice at Texas Tech University.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.