Labor Department Issues Fiduciary Rule

New Fiduciary Rule Places More Accountability On Financial Professionals

On April 6th of this year, the Labor Department issued the final “conflicts of interest” rule, known in the industry as the Fiduciary Rule, requiring financial professionals and brokers overseeing individual retirement and 401(k) accounts to act in the best interest of their clients. In other words, they must adhere to a “fiduciary” standard as laid out under the Employment Retirement Income Security Act of 1974 (ERISA).

Fiduciaries hold a legal or ethical relationship of trust with other parties and are expected to act in the best interest of whomever he or she owes the duty (the “principal”). Therefore, financial professionals will be expected to act in the best interest of their tax advantaged retirement plan clients, disregarding differences in the compensation they may receive if a client were to invest in one entity over another, at all times. At Hubbard Financial Planners, as an investment advisor representative, integrity and acting in our clients’ best interest is, and always has been, a part of our business model. The new standards are expected to encourage a shift in the market that could potentially save billions of dollars for everyday investors.

The Labor Department proposed the regulations a year ago and they have since been modified after hearings and industry criticism. The rules could potentially be challenged in court and are not expected to take effect until next spring at the earliest. The conflict of interest rule only covers tax-advantaged retirement accounts and does not apply to most other investments, but it could lead to other changes in the financial industry.

For consumers, the fiduciary rule places some accountability on their financial professionals that was not in place before. Critics are concerned that the fiduciary rule could make financial advice more expensive due to more legal paperwork and compliance expenses. However, the White House Council of Economic Advisors reports that conflicts of interest in retirement advice lead to an average of one percentage point lower annual returns on retirement savings. That may not sound like much, but it adds up to $17 billion in annual losses to the consumer.


A Fiduciary Guide for Individual Consumer Provided by Amarillo Globe-News

Ask your advisor these questions to find out if he or she is working in your best interest:

  • Do you consider yourself a fiduciary? If not, why?
  • Are you willing to act as a fiduciary with a duty to act solely on my behalf?
  • Are you willing to disclose to me any conflicts of interest that may interfere with your acting solely on my behalf?
  • Are you willing to put this commitment in writing?
  • How are you compensated?
  • Do you earn fees or commissions based on the numbers of products that I buy or by the size of my investment?
  • Will you earn a higher fee or other type of compensation if I invest in certain products you recommend or will you receive fees for services related to specific investment products?
  • Will you provide a list of the fees and commissions you receive either directly from  me or from other sources in writing?
  • Are you a licensed or registered investment advisor?
  • Are you registered with the State, U.S. Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), or the Certified Planner Board of Standards, Inc. (CFP Board)? For how long? What is your experience?
  • Who supervises you, or, are you a sole practitioner?
  • If a sole practitioner, do you have professional liability insurance?
  • Have you (or your firm) ever been disciplined? For what?