The New DOL Fiduciary Rule - Who's on Your Side?

Friday, June 9th, quietly marked an historic day in the financial services world. Moving forward, all financial advisors are required to forego any sales agenda and give advice that will benefit their clients—or, if they decide otherwise, to explain how and why they intend to give advice that instead primarily benefits themselves and their brokerage company. This new rule only pertains to rollovers from a qualified plan like a 401(k) into an IRA, and to the investment recommendations for that IRA account. But, it may be a baby step toward something more appropriately encompassing.

The polls consistently show that most Americans believe they already receive objective advice—called “fiduciary advice” by the profession and regulators. However, the overwhelming odds are that they don’t. There are half a million brokers who earn commissions if they can convince you to buy an expensive alternative to the thriftier, better-performing investment options on the market. That’s more than one hundred times the number of advisors who adhere to a fiduciary standard. Government research estimates that consumers lost $17 billion a year to conflicted advice in the recommendations made by brokers and sales agents posing as advisors related to retirement plans. This, to put it bluntly, helps explain why so many Wall Street brokers are ostensibly disappointed if their annual bonus is in the low seven figures.

The actual number of fiduciary advisors may actually even be lower than this discouraging figure. A mystery shopper study in the Boston area found that only 2.4% of the “advisors” surveyed made what most would consider to be fiduciary recommendations. On the other side, 85% advocated switching out of a thrifty portfolio with excellent funds into something a bit more self-serving.

An article in Bloomberg recently outlined some of the ways that you can be taken by a sales pitch and never know it. It notes that the brokerage industry—that is, the larger Wall Street firms, independent broker-dealer organizations and life insurance organizations—repeatedly fought the fiduciary rule in court. Their argument? Their brokers and insurance agents shouldn’t be held to this standard; because, despite what they said (or what the companies’ marketing materials proclaimed), they were nothing more than salespeople trying to affect a sale.

It gets worse. Even though brokers are held to a sales standard referred to as “know your customer” and to make investment recommendations that would be “suitable” to someone in your circumstances (a very low standard that is at the very bottom of the “compliance” barrel), a new study found that 8% of all brokers have a record of serious misconduct, and nearly half of those were kept on at their firms even after getting caught.

We don’t know how long this regulation will be in effect. New Labor Secretary Alexander Acosta has announced that he’s studying whether the rule that requires brokers to act in the best interests of their customers is good or bad for customers, and his comments hint that he thinks you would be harmed if suddenly you were able to trust the advice you receive. Really? But there really is only one simple way to determine whether you’re working with an advisor that you can trust.

First, find out how your advisors gets paid. Find out what their legal standard of care is for your accounts, your financial plan (if they even create one) and your relationship in general. Ask yourself if your advisor takes the time to really get to know you, your goals and your overall financial picture. Does your advisor understand your tax situation, risk tolerance, estate planning opportunities, and risk mitigation strategies?

As we enter full swing into the summer season, please know that we remain vigilant to the fiduciary (put clients’ interest first – always) standard of care from which this firm was founded over 20 years ago.


Bloomberg Article 

DOL Fiduciary Rule 

NH Your Money