The Department of Labor’s New Fiduciary Duty Rule

On April 6, 2016, the Department of Labor (DOL) issued its final rule relating to financial advisors’ fiduciary duty in investors’ retirement accounts. This new rule takes partial effect in April 2017, and by January 2018 the new rule will be fully implemented.

Fiduciary Duty Defined

“A fiduciary duty is a legal duty to act solely in another party’s interests… Fiduciaries may not profit from their relationship with their principals unless they have the principals’ express informed consent. They also have a duty to avoid any conflicts of interest between themselves and their principals or between their principals and the fiduciaries’ other clients. A fiduciary duty is the strictest duty of care recognized by the US legal system.” https://www.law.cornell.edu/wex/fiduciary_duty

Before the New Rule, Your Financial Advisor was Rarely Required to Put your Interests Ahead of Theirs

Prior to the new fiduciary duty rule, advisors were only required to make recommendations that were considered suitable. In other words, without a fiduciary duty, when an advisor had two identical products available to sell you but one has a higher commission, as long as the product is suitable, your advisor could put his interest above your own and sell you the higher commission product even where there is a cheaper alternative. With the implementation of the new fiduciary duty rule, this scenario is no longer allowed in your retirement account, since your advisor is now required to put your interests before his.

When the new rule takes effect in your tax advantaged retirement accounts, including ERISA covered employee benefit plans and Individual Retirement Accounts (IRAs), advisors will be required to put your interests ahead of their own while servicing your retirement accounts.

How the New Fiduciary Rule Affects Investors

Most investors generally assume that their advisor is already required to put the investors’ needs ahead of their own. Unfortunately, this is generally not the case in the majority of investors’ accounts. Now, at least, investors’ retirement accounts trigger this duty to go beyond what is merely suitable for you and actually put your needs before those of the advisor.

The rule only applies when your advisor actually recommends a specific product to you. Merely being provided with educational materials about a product is not considered advice triggering the new fiduciary duty rule.

Not Everyone is Happy that Financial Advisors Must Place your Interests Ahead of Theirs

Certain organizations, including the Insured Retirement Institute, the American Council of Life Insurers and the U.S. Chamber of Commerce are reviewing the new rule and are expected to explore their legal options to challenge the DOL over whether the DOL has any authority to regulate IRAs or the financial industry, generally.

If you have further questions about the Department of Labor’s fiduciary duty rule, or have experienced investment losses in your retirement account, please do not hesitate to contact our firm. The Sonn Law Group legal team represents investors throughout the United States. We look forward to discussing your claim with you. All consultations are free and confidential.