Julie Jason's Your Money: Many people unaware of new fiduciary rule for financial advisers

By JULIE JASON June 03. 2017 1:48AM


The U.S. Department of Labor's fiduciary rule finally goes into effect on Friday, and it will affect you if you have an IRA or a 401(k). The rule establishes a higher standard of care for some financial advisers.

If you are like most Americans, however, you might not be aware of the rule and its effects on how you manage your retirement accounts. Sixty-eight percent of those surveyed by Financial Engines recently have not even heard of the DOL's fiduciary rule.

The rule has to do with an adviser's duty to you, the client, when dealing with retirement accounts. Advisers' activities are regulated by federal and state securities laws, and those regulations impose different legal standards based on the statutory division between broker/dealers (the Securities Exchange Act of 1934) and investment advisers (the Investment Advisers Act of 1940).

Plus, marketing titles don't help consumers distinguish financial advisers who work for broker/dealers (BDs) and those who work for registered investment advisers (RIAs) - everyone is a "financial adviser" or a "wealth manager" these days. Neither title tells you anything about duty to the customer. Consumers are not aware of the difference in standards - the lower standard of suitability applies to BDs, and the higher standard of fiduciary applies to RIAs.

To add to the confusion, some BDs are "dually registered" (also RIAs); their advisers may act as fiduciaries some of the time.

That's the regulatory landscape when it comes to securities laws - the laws that regulate financial advisers and the firms they work for.

So now, the DOL comes into the picture with a set of rules that do not supersede or displace the rules the BDs and RIAs must follow. Instead, the rules add responsibilities for both, raising the bar for BDs and adding additional hurdles for RIAs who are already held to a fiduciary standard under the securities laws.

I'll give you more details on distinctions in a future column.

In the meantime, let me share what Americans know about their financial advisers' duties, as recently reported by Financial Engines. The results are illuminating.

When asked, "Do you know the difference between a financial adviser who is a 'fiduciary' and one who is not?" the majority (61 percent) said "No." Would you also answer "No"?

Fifty-three percent believe "all financial advisers are legally required to put the best interests of their clients first when they give advice on retirement investments." We know that is incorrect.

Thirty-eight percent of those who were currently working with a financial adviser did not know if the adviser was a "fiduciary," meaning he or she is legally required to put your best interest ahead of his or her own when making a recommendation.

Thirteen percent thought it was a good thing that some products paid commissions to advisers "for steering their clients' money into certain investment funds" that could have higher fees. Forty-eight percent thought this was "a bad thing for me," and a very large percentage (38) were not sure. It's a bad thing for all concerned if the goal is a higher commission to the adviser.

Seventy-two percent (not 100 percent, as I would have thought) said "Yes" to the following question: "Would you support requiring all financial advisers who provide advice on retirement assets to be legally required to put your best interest first?" But 93 percent said it was important "that all financial advisers providing advice on retirement savings be legally required to put your best interest first."

If you knew the financial adviser was "legally required to put your best interest first," would you be more likely or less likely to want to work with the adviser? The majority responded yes, but not as many as you would think. Only 65 percent said yes; 9 percent said no; and 26 percent said they didn't know.

What would people do if they found out their adviser was not a fiduciary? Only 12 percent would stay in the relationship.

Let me share one final question, which really shows how little people know about the subject: "Who do you think stands to benefit the most from the fiduciary rule?" Twenty-eight percent said average-income investors; 17 percent said banks and other large financial institutions; 17 percent said financial advisers; 12 percent said wealthy investors; 7 percent said large employers; 6 percent said small employers; 6 percent said politicians; and 8 percent said others.

If people believed in the fiduciary rule, they would see it as benefiting them.

To see the survey, go to http://tinyurl.com/yav7qn6o.

Julie Jason, JD, LLM, a personal money manager at Jackson, Grant of Stamford, Conn., and award-winning author, welcomes questions and comments to readers@juliejason.com.


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