“Death to the Fiduciary Rule” is the rallying cry of opponents to the Rule. Despite four court cases in which opponents were soundly defeated, the Fiduciary Rule may be on life support.
What is the Fiduciary Rule? Why do some people oppose it? If it is killed, should you care? This is the first in a series of posts that are intended to answer these and other questions.
The word fiduciary comes for the Latin word fiducia, meaning “trust.” For an investor, a fiduciary is someone who, with total trust, good faith and honesty, gives advice, makes recommendations, or affects security transactions. Is that not a reasonable expectation?
There’s been a blurring of the words investment advisor, broker, and consultant. Investors look for advice, but from brokers (aka financial consultants) and insurance agents, investors only receive “recommendations,” the legal standard for which is that they be “suitable” versus being in the investor’s best interest. (This is not to say that there are not brokers who do an excellent job for their clients.) Many “advisors” are conflicted, facilitating transactions that pay themselves high commissions and fees. Brokers and insurance agents can argue (successfully) that they are not legally fiduciaries.
Caveat emptor. Let the buyer beware.
The intent of the Fiduciary Rule (a regulation issued by the Department of Labor) is not to help distinguish an investment advisor like NWCM from a broker or insurance agent. Rather, the Rule unequivocally makes fiduciaries of all advisors, brokers and insurance agents in every instance when making recommendations, giving advice and facilitating transactions which affect Employer-sponsored retirement accounts and IRAs. The Rule requires that the fiduciary take into consideration the needs and circumstances of the investor. The Rule further requires compensation earned by the fiduciary be “reasonable.”
The Rule demands that the investor’s interest comes first—a principle that has always governed NWCM’s conduct.
Sounds like a great rule!
Its implementation date is to be April 10, 2017. However, a proposal this past Wednesday has been submitted to delay the implementation date until June 9—a proposal that is all but certain to be enacted.