In a recent blog post, I talked about University of Chicago Professor Harold Pollack’s simple rules for personal finance – so simple, he said, they would fit on an index card. Professor Pollack thinks financial advice can be too complicated, and so do I. One contributor to the problem is our complex regulatory environment.
Many retail investors already think that the financial advice they receive is in their best interests, whether that advice comes from an insurance agent, broker, or Registered Investment Adviser. But unfortunately, two standards exist in the regulation of financial advice in the U.S.: a “fiduciary” standard, which applies to Registered Investment Advisers (“fiduciary” means the adviser must place the client’s interests first), and a “suitability” standard, which applies to brokers and insurance agents (“suitability” means the advice provided must be suitable for you, but it doesn’t necessarily need to be in your best interests).
Last year, the U.S. Department of Labor (DOL) proposed a rule that would legally require brokers working with retirement accounts to act in the best interests of their clients and disclose any conflicts of interest. The proposal drew strong opposition from the financial services industry, with opponents saying the rule would increase liability risk and regulatory expenses. They argued that the average investor would suffer, because brokers would need to work with only high-net-worth investors to stay profitable, creating an advice gap for those with smaller portfolios.
It’s been a long, protracted battle, but the DOL finally the Fiduciary Rule to the Office of Management and Budget (OMB) at the end of last week, and if OMB approves, DOL could release the rule this spring. Even if Congress were to pass a resolution of disapproval, President Obama, who supports the rule, could veto the resolution, paving the way for implementation before a new president takes the White House next year. Right now, brokers who provide retirement advice are bracing for the impact.
Will the DOL rule simplify regulation and make it easier for consumers to understand the advice they receive? Not likely. While this is a step in the right direction, the U.S regulatory environment remains hopelessly complex, with so many rules and caveats that the average investor will still have to be vigilant when seeking advice at a fiduciary level.
If you have questions, we’re always here to help. At AMDG Financial, “fiduciary” is a standard we embrace, both as individual advisers and as a firm. And while the new DOL Fiduciary Rule won’t solve all the problems consumers face when seeking competent, ethical advice, it’s a start. It will be interesting to watch as the new rule unfolds in 2016.
By the way, is your adviser a fiduciary? How do you know?