The End of the Fiduciary Rule and What It Means to You

A post about the squashing of the Department of Labor's Fiduciary Rule has been long overdue. In case you haven't heard, in June of this year, the Obama-era Fiduciary Rule-—a rule that sought to uphold more financial institutions and advisors to a fiduciary standard of care and obligated them to act in their clients' best interest—was overturned and abolished. The Department of Labor's research found that Americans lose $17 billion a year due to conflicts of interest, namely in the form of hidden and/or excessive fees. Our firm can attest to this: This year alone we've saved our clients hundreds of thousands of dollars in unnecessary fees and financial commitments from products they didn't need and that were sold to them in a less-than-transparent manner. One case that is still ongoing involves a U.S. investment advisory firm that was just fined $8M from the SEC for several securities violations, some of which included lying to consumers by telling them they were "fee-only" financial advisors when they were in fact earning sales commissions, failing to disclose significant conflicts of interest, and substantially misrepresenting product tax benefits. There's no doubt that with the overturning of the Fiduciary Rule, Wall Street has won, and Main Street consumers have lost an important battle.

What does this mean to you as a consumer? It primarily means that you will have to continue to do your due diligence when seeking out financial advice and products. The one bit of good news about all of this is that many consumers now understand what it means for an advisor to be a fiduciary, and they've learned that not all advisors are legally held to a fiduciary standard of care. Consumers will want to continue to ensure that any advisor with whom they work is indeed a fiduciary, i.e. that the advisor is obligated to provide advice that is in their best interest and is not being motivated by a desire for sales commissions or any other form of conflicted compensation. The best way to avoid these conflicts of interest is to work with an advisor who is a member of the National Association of Personal Financial Advisors (NAPFA). All NAPFA advisors are not only CERTIFIED FINANCIAL PLANNER™ professionals, but they are also fee-only planners, which means they've taken a fiduciary oath to never get paid in the form of sales commissions, and all of their compensation comes directly from the client on a fee-for-service basis. This is not to be confused with "fee-based;" fee-based advisors are what are known as dually-registered advisors, which means they can still get paid in the form of sales commissions and provide advice that is not in the client's best interest. It's also important to make sure any advisor with whom you work acts in a fiduciary capacity 100% of the time. Some advisors, namely fee-based advisors, can operate as a fiduciary for one part of an engagement, and then put on their sales hat to sell commission-based products for another part of the same engagement.

The SEC is currently working on another consumer protection rule, but there are are still a lot of unknowns about whether or not its final product will provide any useful protections for consumers. In the meantime, it's a "buyer-beware" environment out there and, as was the case prior to the fiduciary rule, a consumer's best course of action is simply to work with a fee-only financial planner who acts in a fiduciary capacity 100% of the time.

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