New Fiduciary RuleSubmitted by Karstens Investments on September 25th, 2017
By Mark Johnson, AIFA
Since the enactment of Employee Retirement Income Security Act of 1974 (ERISA), there has not been a single offering of legislation, regulatory guidance or rule making by the Department of Labor (DOL), SEC or IRS that has affected investment advice on retirement accounts. On June 9, 2017, the DOL’s Con ict of Interest Rule, referred to as the Fiduciary Rule, will quietly change the way investment advice is offered and paid for by the public.
Prior to June 9th, the fiduciary standard was applied if the advice was individualized and periodically given with the mutual understanding that it was the “primary basis” for making investment decisions. For Broker/Dealers, their advice requirement needed to only meet a “suitability” standard of care meaning a reasonable basis to believe that investment recommendations were suitable based on facts and circum- stances. This has all changed with the introduction of the Fiduciary Rule.
To simply state the intent of the rule, investment advice offered on retirement accounts in exchange for compensation is a fiduciary act. The fiduciary standard of care is the highest expectation of loyalty under the law. Persons in a fiduciary capacity must act in the best interest of their client, charge reasonable fees and avoid con icts of interest. The fiduciary designation under the law will be a heavy burden in the investment product world since many products sold have high fees and com- missions.
Going forward, all retirement accounts including 401(k) plans, 403(b) plans, SIMPLE IRAs, SARSEP, SEP IRAs, de ned bene t plans, IRAs, individual retirement annuities and HSAs are subject to this rule. It is easier to name the types of plans that are not subject to this rule, such as government, 457, church and non-quali ed plans.
We welcome the implementation of this rule by the DOL for it reaf rms our existing practices. We believe it will bring more fee transparency to the industry and will re- quire advisors to act in the best interest of their clients. At the very least, customers will have more protection from misrepresentation and excessive fees under this rule.