DOL Issues Fiduciary Rule

On April 6th, the Department of Labor finalized a rule which has been years in the making. You may have seen provocative headlines such as:

New Fiduciary Rule for Financial Advisors Prohibit Conflicts of Interest

DOL Rule Forces Financial Advisors to Do What’s Best for Clients

Investment Advice Just Got a Lot Safer


I’ll cut to the chase before I go into the details. The rule requires that investment advice given on tax deferred accounts (IRAs and others) be held to a fiduciary standard. This will have significant impact on the investment business as a whole, but will have little impact on how Century Wealth Management operates or manages investments.We are and have always been a fiduciary. By choice and by law, we put our clients' interests ahead of our own. When Century Wealth Management was founded sixteen years ago, we did not have to choose to operate at this highest standard of care, but we did because it aligned with the vision of the firm we wanted to build. Our clients' best interest will always be our priority.

Deeper Dive

The Department of Labor (DOL) has been responsible for the regulation of employer sponsored retirement plans since the passage of the Employee Retirement Income Security Act (ERISA) law in 1974. ERISA has strict rules about what can and can’t be done by those offering or servicing company retirement plans. Most parties involved with a company retirement plan are held to a fiduciary standard, which means putting the interest of plan participants first. Period. No exception.While compliance with ERISA law and DOL rules can be a burden on those offering and servicing 401(k) plans, the plan participants have been served fairly well. Fees are generally low, investment choices are generally good, and if they aren’t, there is a swarm of class action lawyers who will be happy to take a look at your 401(k) statement.Until now, the fiduciary standard of care existed only in the company retirement plan space and with firms, such as Century Wealth Management, registered with the SEC. Brokers (and even brokers holding themselves out as comprehensive financial advisors) are held to a much more flexible suitability standard. Suitability means they can offer products that are not necessarily in your best interest (higher fees and commissions) as long as the product meets your overall objectives.There has been much debate about whether all investment advice should be held to a fiduciary standard. Most regulators and good actors within the industry think it should be, but the established brokerage firms like the “flexibility” of the current model. The SEC, which has supervision of the industry as a whole, has procrastinated for years on broadening the fiduciary obligation. This delay caused the President to step in and use the existing ERISA law to expand the fiduciary obligation from company retirement plans to Individual Retirement Plans (IRA) as well.While no government regulation is perfect, we do consider this progress. This rule will stifle a lot of high-commission sales practices and make it harder for bad actors to prey upon uninformed consumers. Eventually, we expect the SEC to act, but for the time being, this is the lay of the land.

Posted by Jay Healy at 2:35 PM
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