Department of Labor Fiduciary Rule in Effect as of June 9, 2017; More Conditions Scheduled to Become Effective January 1, 2018

Effective June 9, 2017 the U.S. Department of Labor’s “fiduciary rule” took effect. Anyone who handles retirement assets and gives advice (including financial professionals of all types, whether they call themselves brokers, financial advisors, financial planners, or wealth managers) must adhere to new “impartial conduct standards.”

The final rule was released nearly six years after it was first proposed by the Obama administration. The rule is set up to roll out in phases. Other provisions within the rule are scheduled to become effective January 1, 2018.

During the transition period, financial institutions and advisors must adhere to the “impartial conduct standards” which ensure adherence to fiduciary norms and standards of fair dealing. Advisors and financial institutions must give advice that is in the “best interest” of the retirement investor, which has two chief components: prudence and loyalty. Under the prudence standard, the advice must meet a professional standard of care. Under the loyalty standard, the advice must be based on the interests of the customer, rather than the competing financial interests of the advisor or firm. Advisers must also charge no more than reasonable compensation and make no misleading statements about investment transactions, compensation and conflicts of interest.

If you thought the above was already required, you are not alone. Under many circumstances, including with respect to most “wrap” accounts, discretionary accounts, and where the broker has exercised de facto control over an account, a broker already owed a fiduciary duty.  In addition, this change better aligns public expectations with legal realities.   According to TIME.COM, nearly half (46%) of Americans believe that all financial advisors were already required to always act in their clients’ best interest.