Michael J. Nathanson, JD, LLM
Chairman, Chief Executive Officer & President
April 13, 2016
Just about everyone who has read this week’s financial headlines must be wondering about all the fuss surrounding the Department of Labor and the “fiduciary” standard being imposed on certain advisors. What does it all mean, and what specifically does it mean for investors?
Well, the basic answer to those questions is that last Wednesday the Department of Labor issued new rules that require investment professionals providing advice to retirement plans and individual retirement accounts to adhere to the fiduciary standard of providing advice. The fiduciary standard – which some consider to be the gold standard of investment advice – requires one simple thing above all others: that the interests of clients (in this case the participants of retirement plans or individual retirement accounts) must always come first.
Now, much has been written since Wednesday about the new rules and how they have been changed from the version of the rules that initially was proposed in 2015. Advisors were given more time to implement the rules; greater clarity was created as to when they would apply; and other changes were made – partly in response to comments from brokerages, wirehouses, and others with large stakes in the retirement markets.
Yet, these headlines and stories are missing a broader point. The new rules should be a wake-up call for all investors. Yes, the fiduciary standard will now be imposed on advisors in the retirement space, but why is it not imposed on all advisors – inside and outside of the retirement space? Many investors do not even realize that their own advisor may be subject to a very different legal standard, the “suitability” standard, which allows some advisors to recommend investments that are suitable for their clients even if those investments are not necessarily in their clients’ best interests.
We hope that, in their totality, the Department of Labor’s rules are a next step in the evolution of all financial advice toward a broader application of the fiduciary standard. As an advisory firm that has long adhered to the fiduciary standard, we welcome the Department of Labor’s rules and believe that they are in the best interests of all those whose advisors have not followed the fiduciary standard. Yet, we also wonder when, if ever, the brokerages and wirehouses will be required to follow suit for non-retirement advice. The Dodd-Frank Act, which was enacted in 2010 as a response to the financial crisis that began in 2008, required the SEC to consider imposing the fiduciary standard on brokerages and wirehouses, but efforts to do so have stalled. We applaud the Department of Labor for its leadership and look forward to a broader extension of the fiduciary standard to all who provide investment advice. Everyone – investors and advisors – most surely will be better served under the fiduciary standard.