Fiduciary Standard of Care

The Latest Update on the Fiduciary Rule

While you have been watching the recent volatility in the stock market or the latest political drama unfolding in Washington, you may have missed the latest news on the Department of Labor fiduciary rule that we have been periodically writing about for several years.  On March 15, the fifth U.S. Circuit Court of Appeals vacated the DOL fiduciary rule, effectively striking down the proposed regulation.  Following the court decision, on March 16 the DOL indicated that it would no longer enforce the fiduciary rule, pending further review.

The court’s ruling leaves many questions for investors and regulators about the direction of any future attempts to regulate behavior for advisors in the financial services industry.  Here are some possible scenarios and outcomes that could transpire in the future.

Department of Labor Appeal

The DOL may choose to appeal the fifth Circuit’s decision.  The DOL has until April 30 to request a rehearing of the appeal before the 17-judge court.  The DOL could also decide to petition the Supreme Court to hear the case before the June 13 deadline date.  There is no certainty that the Supreme Court would elect to hear the case, however.

State Level Regulation

If the Department of Labor fiduciary rule dies in the legal system, states could decide to pursue legislation instituting their own standards for client care.  At least one state, Nevada, enacted its own fiduciary law on July 1, 2017 and could release related rules in the future.  Other states, including New Jersey, New York and Connecticut are also looking into regulations that require advisors to disclose their fiduciary status to consumers and investors.

Securities and Exchange Commission Fiduciary Proposal

The Securities and Exchange Commission (SEC) is moving forward with its own fiduciary rule, independent of the Department of Labor’s fiduciary rule; according to SEC chairman Jay Clayton.  Mr. Clayton said the SEC is moving ahead with the proposed rule despite the setback faced by the DOL’s fiduciary rule.  That proposed SEC rule could be ready as early as this summer.

What is Next?

Any or all of the scenarios detailed above could happen in the not-too-distant future.  On the other hand, another type of regulation could emerge to fill the vacuum left by the recent court vacation of the DOL’s fiduciary rule.  Another possibility is that no fiduciary regulations or legislation is enacted any time soon as courts debate the matter in depth.

The biggest implication of the DOL fiduciary rule decision by the fifth Circuit Court of Appeals is that not all advisors dealing with retirement accounts will be held to the higher standard of care for clients and the advice they provide.  Rather than providing advice that is solely in their client’s best interests, some advisors will only be required to provide ‘suitable’ advice and recommendations, a much lower standard of care.  The suitability standard of care has cost investor millions to billions of dollars in needlessly paid commissions and questionable advice over the years.

Well-informed investors need not worry about the Department of Labor’s or any other regulatory agencies’ fiduciary rules.  There are financial advisors and planners that already adhere to the stricter fiduciary standard of care for clients.  Investors simply need to find Registered Investment Advisors (RIAs) who work on a fee-only basis.   An even better choice for investors and consumers would be to find fee-only RIAs with a Certified Financial Planner™ designation.  These types of advisors are not difficult to locate, and they frequently do not cost any more to work with than other types of advisors.

If you would like to talk to a fee-only advisor who upholds the fiduciary standard of care, or would like to find out if your advisor is operating as a fiduciary, please call the advisors of Bollin Wealth Management at 419-878-3934.  We will be happy to assist you.

Sources:  InvestmentNews, Wall Street Journal, www.bloomberg.com