With the proposed Department of Labor (DOL) Fiduciary Rule originally scheduled to take effect on April 10th this year, we have received a few inquiries asking (1) if we are fiduciaries, and (2) what the rule means for our clients and the industry as a whole.
Let’s start by understanding what it means to be a fiduciary. Essentially, a fiduciary is a person or organization that is bound ethically to act in the best interests of the person he or she represents. The duty of a fiduciary is to act in good faith at all times. The origin of the word harkens back to the latin word “fiducia” which means trust.
At Avier, we are fiduciaries and adhere to a fiduciary standard in all our interactions with the public. Always have been. Always will be. It’s who we are to the core. It means that we are transparent and open about the costs and benefits of everything we do in your portfolios. There are no hidden fees. We do not take commissions or other compensation from anyone else for using their products. We are a “fee-only” Registered Investment Advisor (RIA) regulated by the SEC. We are compensated exclusively by our clients, which allow us to reduce any conflicts of interest and sit on the same side of the table in finding the best solutions for our clients. Not to be mistaken with others in our industry that may call themselves ‘advisors’ but are regulated under FINRA, an independent regulatory authority, and held to a different standard.
This leads me to the “Suitability Standard” which in a nutshell only requires these ‘advisors’ or broker / dealers to determine if a certain product is “suitable” for your situation. However, it does not require disclosure of compensation they may receive for selling that product to you. Many an annuity or life insurance product is sold under this standard along with other commission-heavy investments. Some brokers / dealers will use the term “fee-based” to give the illusion that they only charge advisory fees, but also will take commissions on products sold.
Enter the Department of Labor (DOL) Fiduciary Rule. This rule extends the reach of the DOL into the IRA account arena by requiring that any advice given on IRA accounts, especially rollovers from company retirement plans, must meet the fiduciary standard. This is true whether the advisor is providing ongoing advice or just making a solicitation. All fees and commissions must be clearly disclosed in dollar form to clients. In a perfect world, the regulatory framework would extend beyond retirement plans.
The DOL Rule strikes me as a backdoor way to implement positive change which could be made much clearer if the Securities and Exchange Commission were to create a similar rule, which is a step in the right direction. We applaud the concept of the Fiduciary Rule and think that every investor deserves a fiduciary as their advisor. Commissions are a powerful motivator, however, which explains why there is pushback from some sectors of the industry. The talk of the delay pre-dates the presidential election and would allow companies more time to adjust to the new regulations.
As of today, April 5th 2017, the DOL Fiduciary Rule has been delayed until at least June 9th of this year. It’s anyone’s guess what the future holds for this rule. But, frankly, our only concern is as an advocate for those who pay exorbitant fees and commissions because they don’t know any better. At Avier, we are committed to adhering to a fiduciary standard regardless of whether the rule is fully implemented, delayed or scrapped altogether.
You, as well as your family, friends and colleagues should expect no less.