Financial Planning

Fiduciary Rule Basics for Investors

If you’re getting notices from your financial professional about changes in how they operate, it may be because of the new Department of Labor fiduciary rule. Here’s what retirement savers should know.

There has been quite a bit of news regarding the question of what an investment fiduciary is, based in part on protracted wrangling over a Department of Labor (DOL) ruling. Now that the new rules have taken effect (as of June 9, 2017) it’s time to review their finer points.

What is an investment fiduciary?

An investment fiduciary is a financial professional who is legally bound to act in the best interests of their clients. In the past, there was no legal requirement that financial professionals follow that standard, and not all of them did. Some, not me, chose to act in their own best interests or the best interests of the portfolio, leaving out the client’s needs or interests.

The old standard was akin to selling someone clothes that fit while the new standard is that the clothes have to fit while also making the customer look good. It’s a subtle yet significant change.

How will the new fiduciary rule impact my relationships with clients?

It won’t impact my clients because it’s been my standard practice, since I started in the financial planning industry, to always provide services in a fiduciary capacity. I work on behalf of my clients and in their best interests. We work together to develop a financial strategy that we then implement to help them reach their goals, whether that’s to retire at a certain age, buy a home, get married, have kids or take a dream vacation.

What should every person who works with a financial adviser know about the fiduciary rule?

  • The fiduciary rule applies to retirement accounts only at this time (including 401(k)s and IRAs funded with pre-tax money), but many financial firms are making the changes across the board under the assumption that all investments will be subject to the rule in the future.
  • To provide a recommendation to a retirement investor, the recommendation needs to be in the best interest of the investor. But requirements including documenting an interest analysis are not required until Jan. 1, 2018.
  • Financial professionals can charge no more than reasonable compensation. The question of what exactly that is remains unclear; most companies will set their own internal practices.
  • Financial professionals should provide no leading statements about investment transactions, compensation, conflicts of interest, and tell the truth. At this time, there is no way to measure or police this regulation, so time will tell how effective it can really be.

What does this mean for retirement investment accounts?

As consumers, it means having a greater awareness and understanding of what your financial adviser is doing on your behalf when it comes to retirement and other investments. If you don’t have a clear understanding, ask questions, and if you don’t like the answers or your adviser doesn’t know the answer, it might be time to find a new financial adviser.

About the Author

Shanna Tingom, AAMS®

Co-Founder, Heritage Financial Strategies

Shanna Tingom is a registered representative, securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Heritage Financial Strategies are not affiliated.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
What Is the Social Security COLA?
retirement

What Is the Social Security COLA?

For the average recipient, the 2021 monthly increase doesn't even cover a fill-up at the gas station — but it beats nothing.
July 14, 2021
11 Best Healthcare Stocks for the Rest of 2021
healthcare stocks

11 Best Healthcare Stocks for the Rest of 2021

The 2020s could be the decade of healthcare stocks. Here are 10 companies and one ETF to watch not just for the remainder of this year, but well beyon…
July 13, 2021

Recommended

Know Your Rights in Debt Collection
Financial Planning

Know Your Rights in Debt Collection

A wave of post-pandemic debt collection is coming. Here's how to dispute a debt and protect your assets.
July 23, 2021
The Psychology Behind Your Worst Investment Decisions
investing

The Psychology Behind Your Worst Investment Decisions

We can torpedo our portfolios without even realizing it. Avoiding these seven traps will allow you to make rational investments.
July 22, 2021
A Responsible Way for Teenagers to Get into Investing? Maybe.
investing

A Responsible Way for Teenagers to Get into Investing? Maybe.

Fidelity has a discount brokerage platform just for kids called a Youth Account. It has some protections baked in, along with some opportunity to lear…
July 22, 2021
25 Best Kirkland Products You Should Buy at Costco
Smart Buying

25 Best Kirkland Products You Should Buy at Costco

Many of warehouse club Costco's store-branded Kirkland Signature items get high marks for quality and value. Check out our picks.
July 21, 2021