A couple months ago, we wrote a blog post discussing the potential changes in the Fiduciary Standard and how it could affect the way brokers make investment suggestions to their clients. As a fee only advisor, this proposed legislation cuts to the very core of how our company chooses to conduct business. It means that we offer investment advice and suggestions to our clients because they are in their best interest and not because our company will make any money from the suggestions. This is unlike a traditional advisor who makes commissions on the products suggested. It only makes sense that they would push the products that will help them make more money.
So with all that in mind, we wanted to give you an update on the status of the Fiduciary Duty legislation. According to an article in InvestmentNews, the legislation has been slated for long-term action in 2014. So, what does this mean, exactly? In a nutshell, the proposed legislation is not high on the priority list at this point – read it “on-hold.”
The US Labor Department has indicated that it is considering re-introducing the fiduciary duty rule in August of 2014 as it pertains to investment advice given for retirement plans. This is not the first time the idea has been floated by the Labor Department. In 2010 it was introduced, but quickly withdrawn because of fierce push-back from the financial industry. The fear was that the measure would drive brokers out of the market when selling investments within IRAs.
While the 2008 Dodd-Frank financial reform law allowed the SEC to investigate regulation that would require brokers to act in the best interests of their clients when providing advice, at this time the SEC is still conducting a cost-benefit analysis of a potential fiduciary-duty rule.
So the current status is…“Pending” as the SEC continues to investigate, and the Labor Department decides if it will re-introduce the measure. Meanwhile, unknowingly, the consumer is the one who will suffer from advice given based on an advisors bottom line. So until the legislation actually passes, our best advice, as always, is to work with a fee-only advisor. This is the only real way the consumer can be sure that their best interests are being considered.