Home Business Financial Brokers Must Now Act in Your ‘Best Interest.’ What Does That Mean?

Financial Brokers Must Now Act in Your ‘Best Interest.’ What Does That Mean?


Overturning the Obama-era rule restored a large part of the Employee Retirement Income Security Act of 1974, which governs when an investment professional must become a fiduciary while handling retirement money. Under that law, fiduciary duty is triggered when an investment professional meets five conditions, including providing individual advice on a regular basis.

But advocates say the rollback reopens loopholes that the overturned rule was meant to close.

As a result, it may be easier for financial professionals to avoid becoming fiduciaries, said Jason C. Roberts, chief executive officer of the Pension Resource Institute, a consulting firm for banks, brokerage and advisory firms. Brokers can skirt the fiduciary standard by structuring their interactions with clients as educational in nature, he explained, and stopping short of what might be considered advice.

“My clients, financial institutions, are going to be very pleased with this proposal, and the investor advocates are going to hate it,” said Mr. Roberts, who is also a managing partner of the Retirement Law Group. “It is not taking anything away — or raising the bar the same way the prior rule did.”

Barbara Roper, director of investor protection for the Consumer Federation of America, also said the new rule appeared to make it easier for a financial professional to avoid being a fiduciary when making certain kinds of recommendations on one-off transactions.

For example, there would be no fiduciary duty for an insurance agent who recommended rolling over the proceeds of a 401(k) plan into a fixed-index annuity product in a one-time sale, she said.

“The new D.O.L. advice rule simultaneously makes it easier for firms to evade their fiduciary obligations and weakened those obligations where they do apply,” Ms. Roper said.

Stakeholders can submit comments on the new proposal for 30 days, ending Aug. 6; the Labor Department will review those comments and evaluate what, if any, changes are needed.

But 21 advocacy and trade groups wrote a letter last week urging the department to provide more time to digest the proposal. “A 30-day comment period is an unreasonably short amount of time to provide thoughtful and comprehensive comments on this complex and highly technical proposal, which would affect our constituencies — including virtually all Americans struggling to save for retirement — in varied and far-reaching ways,” the groups wrote.

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