Score One for Goliath...For Now as published in InsideNova.com
May 11, 2018—Plain and simple: If a financial professional is offering you advice about your money, shouldn’t it always be in your best interest? We think so, and have long advocated accordingly. Unfortunately, as of April 30th, big-broker “Goliath” firms scored another victory that continues to suggest otherwise.
Some background: The financial industry has two groups of “advisors,” each subject to different rules and regulators. One group – including most giant firms – prefers, and is legally allowed to, offer advice that lets them reap more profit at the expense of their customers’ best interests. The other group of us are in a full-time fiduciary relationship with our clients. We’re legally bound to recommend only what is 100% in their best financial interest, whether or not it’s in our own.
When the Department of Labor (DOL) Fiduciary Rule took effect last June, we rejoiced. The rule wasn’t perfect: It only applies to advice on your company and individual retirement accounts. But it was a great start to leveling the playing field, requiring a best-interest standard of care for investment recommendations.
Unfortunately, along came Goliath. The Dallas-based Fifth District Court of Appeals struck down the rule last month, declaring that the DOL had exceeded its authority to protect employees’ retirement savings. (Let the illogic sink in for a moment.) The DOL had until April 30 to appeal the ruling. They did not, so as of May 7, non-fiduciary big businesses can effectively resume business as usual.
Still, time will tell; full fiduciary standards of care may yet prevail. On April 26, the AARP and three states filed a motion to appeal the Fifth District’s ruling. The motion was rejected, but it demonstrates continued concern. The Certified Financial Planner Board also has been actively advancing toward requiring a fiduciary standard among all its CFP® certificant members, despite opposition to its efforts.
Moreover, we may yet see a groundswell of support for wider fiduciary standards. Even among larger firms, I believe many financial professionals really want to help their clients succeed while being fairly compensated for their service. Some had already implemented improved processes before the DOL Fiduciary Rule was struck down. And ultimately, even those who have not welcomed the change may find market forces and informed investors demanding it of them anyway. I hope so.