The New Fiduciary Rule

Fiduciary - noun. from the Latin fiducia, meaning "trust," a person who has the power and obligation to act for another under circumstances which require total trust, good faith and honesty.

If you speak to anyone in the Financial Advising business these days and mention the DOL Fiduciary Rule, you’re likely to get an earful.   As of June 9^th, the Department of Labor (DOL) rule, which requires your Financial Advisor to be a “fiduciary”, went in to effect, applicable to all retirement accounts.   The full implementation of the law is planned for July 2019.  A fiduciary “acts in your best interest.”   That makes sense.  Isn’t your advisor doing that anyway?  Why was this law necessary? What do these standards mean for my accounts?  Good questions!

So why the rule? Well, the previous administration had estimated that conflicts of interest embedded in the way many investment professionals do business cost Americans around $17 billion a year, which takes away from your account’s overall performance.  They believe that more regulation from the Department of Labor will help protect people from excessive costs and mismanagement.  So is the government looking out for the consumer, itself, or both?  Likely both.  One reason many believe this law is solely focused on retirement accounts is because of the foreseeable trouble that awaits Social Security.  With Social Security already strained today, the DOL is looking to protect the consumer’s future retirement dollars.  A noble motive it would seem.   The government simply cannot afford to bail you out during your retirement years. 

But isn’t Concorde Financial already your fiduciary?  Yes, if your account is managed under an advisory fee-based contract.   A commission-based client is not.  A commissioned client pays their advisor when trades are done in the account. The Department of Labor has ruled that a commissioned account has inherent conflict of interests – the incentive for transactions.  A fee-based advisory account aligns client/advisor interests with the incentive based on the value of the account.  The DOL rule supports this method as “in your best interest”.   Concorde is already a fiduciary for fee-based clients; however, there is one big change.   In the past, client/advisor disputes have been addressed through an established process called arbitration. Under this new rule for retirement accounts, advisors are now subject to civil legal action if a client, or group of clients, feels their advisor is not “acting in their best interest.”   This new legal variable is unchartered waters for those in the financial services industry and is causing many to wonder what lies ahead.   

What does all of this mean for you and your retirement accounts? First, expect us to bring up this topic during our next meeting.  We feel this should be an open and honest dialogue.  We will share information on how it impacts your account and answer any questions you may have. We are going to be recommending some changes to fully comply with this new law.   Fee-based advisory has become a standard for managing money in our industry.  The DOL Rule affirms that it aligns our interests and serves your best interest.   Concorde has been a fiduciary for our fee-based clients for over 15 years.  As always, we strive to maintain the highest standards for our clients and their assets and that is why we’re getting ahead of this new law.  We want to be proactive in managing your accounts in full compliance with this new rule.   On balance, we think it is a good initiative for clients, the government, and our industry.

More to come!

John Menser

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