If you have been following the financial news recently, you may have heard about Department of Labor's (DOL) new fiduciary standard rule - also known as the Conflict of Interest rule. Let's review what this means for you.
If you have been following the financial news recently, you may have heard about Department of Labor's (DOL) new fiduciary standard rule - also known as the Conflict of Interest rule. The new rule requires all financial advisors and brokerages who offer retirement investment advice to put their client's interest ahead of their own. There has been a lot of word-slinging about the subject in the last 2 months, now the dust has settled a little, let's review what this means for you...
A fiduciary is expected to act in the best interest of his/her client. The prototypical fiduciary relationship is your medical practice - you are expected and legally required to act in the best interest of your patients and put their interests before your own if a conflict of interest arises. The fiduciary standard is not a new concept in the world of investment advising. In fact, it was initially codified in the Investment Advisers Act of 1940. However, up until DOL's recent ruling, many investment advisors were not governed by the fiduciary standard. Rather they operated under the much more lenient suitability standard.
DOL's new fiduciary rule is welcoming news to the individual investor. While it won't prevent every single case of abuse, it will discourage those less scrupulous financial advisors from taking advantage of their clients. Sure you will likely have to pay a higher price for that advice due to higher compliance costs, but that may be a small price to pay for peace of mind. Investment companies aren't just going to take the new rule lying down, there are already bills being pushed through Congress to kill the new rule. If you are in the financial advice business, fasten your seat belts - the ride is about to get bumpy.