How Does The New Fiduciary Rule Affect You

How Does the New Fiduciary Rule Affect You?

Proposed in 2015, the Department of Labor was called upon to impose a stricter fiduciary standard on financial advisors giving investment advice to retirement plans and their participants.

Updated on Jan 13 2020

Proposed in 2015, the Department of Labor was called upon to impose a stricter fiduciary standard on financial advisors giving investment advice to retirement plans and their participants. IRAs, including IRA rollover recommendations, would have been subject to the new fiduciary standard.

President Obama announced the financial industry overhaul proposal in 2015, stating, “Today, I’m calling on the Department of Labor to update the rules and requirements that retirement advisors put the best interests of their clients above their own financial interests. It’s a very simple principle: You want to give financial advice, you’ve got to put your client’s interests first.”

What was the fiduciary rule?

The fiduciary ruling was a highly debated topic in the finance industry and many brokers and investment firms did not want it to be instituted. The rule was created to protect the interests of clients versus the interests of advisors. Advisors would not be able to hide any conflict of interests and any charges must be disclosed to their clients in the form of dollar amounts.

After major discussion, court battles, and fights, “the Original DOL fiduciary rule, requiring all professionals offering advice on retirement accounts to place clients’ interests ahead of their own, infamously died in court last year.” But, the DOL is now working with the Security Exchange Commission (SEC) to resurrect the fiduciary rule, or a new version of it.

As of now, brokers are held to something called a suitability standard. This standard states that if a recommendation from a broker meets their client’s goal, the product is considered suitable. This suitable product can be sold, even if it’s not the best product, and still meet what they are legally obligated to. They are not held to the fiduciary standard. This can cause conflicts of interest and products being sold that are not in a client’s best interest, while benefitting the advisor. The fiduciary rule was meant to combat this problem.

Who would have benefitted from the fiduciary rule?

While almost all people who seek out financial services would benefit from the new rule, those with fully managed IRAs and 401(k) accounts would reap the most benefits. According to, “That new fiduciary rule raised all advisors offering advice on retirement accounts to the level of fiduciary responsibility, requiring all professionals to put their clients’ best interests ahead of their own.”

What will the new fiduciary rule look like?

While we don’t know yet exactly what the rule will entail, there are some likely outcomes that the DOL will take. Kevin Walsh, principal at Groom Law Group, said there are three predicted outcomes—including the DOL rule taking the form of a prohibited transaction exemption in two ways. The first way being that advisors and brokers comply with the terms set in the SEC’s Regulation Best Interest (Reg BI) and meet conduct standards under the Employee Retirement Income Security Act (ERISA). The second outcome could be a “hybrid approach,” combining elements from the SEC and DOL rules. A third option laid out by Walsh could “see the DOL completely overhaul the scope of which is considered a fiduciary under ERISA.”

With the current Department of Labor differing so much than when Obama was president, a fiduciary rule similar to the previously proposed one is unlikely. President Obama’s rule greatly expanded the definition of a fiduciary, which increased the number of advisors that would give advice based on a client’s best interest.

Finding a financial advisor that works in your best interest

While the courts battle it out, there are ways to find advisors that will act in your best interest, regardless of future rulings. Fiduciary advisors are legally required to put the best interest of their clients first, regardless of their own. They set you up for success and don’t sell you products that make them money.

Read more to understand why fiduciary financial advisors are so important. We’ve compiled a list of questions to ask your advisor to make sure that they are a fiduciary and will work in your best interest.

Trusting someone else with your money can be scary so it’s essential that you are set up for success. Find a fiduciary advisor today and be sure your investments will be taken care of.

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