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Will The New DOL Rule Impact You?

June 12th, 2017 | Written by


On June 9th, a major change occurred in the financial services industry.  After years of debate and a last-minute delay by the Trump Administration, the Department of Labor’s Fiduciary Rule went into effect.

If you are like most people, you are probably wondering what this means to you.

When people seek advice from their doctor or their attorney, they expect these professionals to put their best interests first.  They expect the same from their financial advisor.  However, unlike the doctor or attorney, most financial advisors are not required by law to put their clients’ interests first.  They are only required to do what is “suitable” for the client, even if that means the recommendations benefit the advisor more than the client.  This is changing with the new ruling.

Actually, it is only partially changing with the new ruling (nothing is ever simple).  The new rule only applies to retirement plans such as 401(k) plans and IRA accounts.  If you hold an investment account outside of a retirement plan, it is still consumer beware.

After June 9th, advisors must act in the best interest of retirement investors.  They owe a duty of prudence and loyalty to their clients.  They may charge no more than “reasonable compensation”.  They must not mislead their clients.

Before the ruling, some financial advisors already held themselves to the higher fiduciary standard. However, it is hard to tell if your advisor acts as a fiduciary unless you specifically ask.  According to a Financial Engines survey, only 21% of respondents could identify the difference between a fiduciary advisor and a non-fiduciary advisor.  Most people believe that all advisors are fiduciaries; 53% of the survey’s respondents incorrectly assumed that all advisors are legally required to put their interests first.

While the ruling is a good first step, it is still important to protect yourself.  When dealing with an advisor, ask them how long they have been acting as a fiduciary to their clients.  Ask if they are a Registered Investment Advisor.  Ask about their credentials.  If they just started acting as a fiduciary because of the new ruling, this is not a good sign.  Doing the right thing should be a way of life.

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    This information is not intended to be used as the only bases for investment decisions, nor should it be constructed as advice designed to meet your particular needs. You are advised to seek the advice of your financial advisor prior to making any decision based on any specific information contained herein.
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