Locking Horns Over the Fiduciary Standard

profit-loss-riskMy Comments: Readers of this blog have seen me talk about the “fiduciary standard” and what it means for clients, the general public and for those of us who provide financial advice. See my blog from earlier this month.

This commentary appeared last Wednesday that suggests there is going to be a resolution soon. And, surprise, it might actually be in the best interest of the consuming public, instead of Wall Street and their friends. Here’s a key paragraph that isolates the problem: “Broker-dealers, banks and insurance companies want to be exempt from the new rules.”

We can hope that whoever is in charge is trying to work toward rules that serve ALL of us, and not just SOME of us.

By Paula Aven Gladych

With the Department of Labor and Securities and Exchange Commission creeping ever-closer to unveiling their proposed changes to the fiduciary standard, there’s little doubt that regulators are about to unleash big changes on stock brokers and insurance agents.

The very meaning of “investment advice” for retail investors may be fundamentally altered in what promises to be a watershed moment.

While the details remain unknown, all signs point toward rules mandating greater transparency and responsibility on the part of securities brokers who work with IRAs and 401(k) plans. They’d be held to the same standard as investment advisors.

Any number of new restrictions might emerge including one preventing firms from paying their brokers or agents more for selling in-house products.

Both the DOL and SEC have received lots of pushback on their plans to amend the definition of fiduciary. The DOL’s version was expected next month but officials this week said that was no longer likely.

Regardless, the most notable complaints: that a fiduciary standard would force brokers to abandon millions of potential customers that they could otherwise serve under current, more lenient standards. And, not surprisingly, that a new standard would cost brokers the ability to earn commissions on IRA advice.

Fiduciaries, of course, must serve the client’s best interests, acting in good faith and prudently with the knowledge and judgment of an investment professional. They must also avoid conflicts of interest and disclose any facts that are material to their relationship with their clients, and they need to work to rein in costs and avoid unnecessary expenses.

Here’s a closer look at the issue, and what those in the industry might want to think about as they prepare for a new day.
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