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“Your Needs Before Mine,” for Everyone on ALL Accounts

Jessica Lanning

You may have heard rumblings in the news about financial advisers needing to increase their standard of care for clients. In the industry, it’s colloquially known as “the DOL Rule,” referring to the U.S. Department of Labor (DOL) regulation requiring financial advisers to use a fiduciary standard of care and charge the same fee, regardless of the product offered, if they advise a client or prospect regarding a qualified retirement plan (a 401(k), 403(b), 457, IRA, Roth IRA, etc.).

In other words, advisers must put their clients’ interests ahead of their own when advising on retirement accounts.

You may be thinking, “What?! You mean not every adviser who helps others with their money always uses that standard?!” Unfortunately, no. In many cases, advisers only need to make sure an investment is “suitable” to the client to sell it to them. This can result in advisers selling clients subpar investments or other less advantageous solution, because advisers make more money selling the subpar investment, win a fancy trip if they sell a lot of them, or puts advisers next in line for the corner office. The DOL Rule was an attempt to curb these kind of practices.

While the intention behind the rule is a good one, politics made for poor execution of it.

  • The financial services industry is regulated by multiple organizations depending on the licensing, product, etc. The Obama administration’s attempts to get legislation passed to overhaul the whole system weren’t politically possible.
  • The Obama administration could focus on what the DOL oversees, which is the Employee Retirement Income Security Act (ERISA).
  • Because the DOL only has jurisdiction over ERISA, the DOL Rule can only apply to retirement accounts.
  • The rule is clunky. Rather than have the rule say, “this is what advisers need to do to meet the standard,” it instead said “we’ll let the IRS, which is the DOL’s enforcement arm, and class-action lawsuits determine whether an adviser met the standard.”

The nature of retooling to follow this rule and the threat of class-action litigation caused many financial services providers to discontinue services. The people most affected were newer and smaller investors who needed guidance the most, and relied on lower commission-costs than would be required by a mandated flat-fee DOL Rule.

The DOL Rule is undoubtedly messy.  Several bills approved by various committees would gut it. But while those bills may pass in the House, they could die in the Senate. Some believe the solution is actually quite easy: Simply have the Securities and Exchange Commission enforce already existing legislation that requires a fiduciary standard and applies it to everyone who is giving advice. If you want to put in your 2 cents, the SEC is looking for public comment.

The good news for you?  I’m a Certified Financial Planner™ and Registered Investment Adviser. That means I already have a fiduciary duty to you on ALL your accounts. So if legislation guts the DOL Rule, you need not worry.

If you have any friends or family members who have recently been orphaned by their adviser (and they’re nice folks who would appreciate my help) please send them my way. I always have been — and always will be — a fiduciary putting clients’ interests first, on all of your accounts, qualified or otherwise.