Why “Fiduciary” Isn't Going Away Any Time Soon

Apr 25, 2017 8:43:00 AM

shutterstock_78279946.jpgOn April 4, the U.S. Labor Department announced it was extending the applicability date for its controversial Fiduciary Rule. The Rule would require advisors to retirement investors to place their clients’ interests ahead of their own, and to charge no more than reasonable compensation for their services. As of this writing, the 60-day extension means the Rule will now take effect on June 9, 2017, instead of April 10. This will allow time for the Labor Department to review whether it would limit access to retirement information and advice

In the meantime, a number of opponents are pursuing lawsuits to kill the Rule completely. While rulings to date have generally favored the Fiduciary Rule, legal maneuvers will no doubt continue. But for many firms, it won’t matter – they’ve either already left the market, or already spent millions preparing for the original April 10 implementation date.

If the Fiduciary Rule dies, what’s next for consumers and the firms that have decided to embrace it? Industry experts say a fiduciary standard for all advisors could still be in the offing, but it may be driven by consumers, not regulators. A new survey by Financial Engines shows that 93 percent of Americans think retirement advisors should be legally required to place their clients’ interests first. The results also found that Americans have gained a better understanding of which advisors are fiduciaries and which are not (21 percent understand the difference this year, as opposed to 18 percent in a survey conducted last year).

So even if the Fiduciary Rule doesn’t take effect, it’s likely there will be growing demand by consumers for advisors who are fiduciaries. As Vanguard Founder and former CEO John Bogle commented in a New York Times Op Ed piece, “The fiduciary rule may fade away, but the fiduciary principle is eternal. The arc of investing is long, but it bends toward fiduciary duty.”

Also, at a recent TD Ameritrade conference, speaker Joe Taiber of Taiber Kosmala & Associates told conference attendees to be prepared. “Regardless of what happens, the cat’s out of the bag now, because clients are more educated,” he added.

If the Rule does go into effect, advisors face yet a different problem. While the Fiduciary Rule, in its current form, discusses conflicts of interest and reasonable compensation, it doesn’t actually define what constitutes a fiduciary level of due diligence. As industry thought leader Michael Kitces points out, the lack of clarity could place firms at risk for lawsuits

Kitces writes that being a fiduciary entails two core duties: a duty of loyalty (to act in the client’s best interests), and a duty of care (to provide diligent and prudent advice in areas in which the advices is competent to provide it). In his opinion, clients could not only sue a financial institution for breaching the fiduciary duty of loyalty, but also for breaching the duty of care – by not training their advisors to be competent.

At Istonish, we believe our Aprisi Assure technology can effectively support advisors and financial institutions in providing fiduciary care. Aprisi Assure provides third-party verification that clients understand the financial products they’re buying, as well as the details of their advisory agreements, which increases trust. It also assists firms with the ability to store and easily retrieve digital evidence of client comprehension in the event of a lawsuit. Finally, Aprisi Assure helps compliance professionals identify gaps in training, by providing data that highlights where and when clients demonstrate a lack of comprehension.

Is your firm prepared to embrace a fiduciary standard of care for clients? If not, Istonish can help.  Sign up for a demonstration of Aprisi Assure, and learn how third-party verification services have helped other regulated industries, such as cable, mitigate risk and comply with regulatory mandates.

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Annette Quintana

Written by Annette Quintana

Annette Quintana is the CEO of Istonish Holding Company, a privately held, Native American- and Latino-owned information technology services company established in 1990. Headquartered in Denver, Colorado, Istonish helps organizations, individuals and communities to be great through innovative technology solutions. Annette’s unique capacity to inspire her team to deliver successful results stems from her enthusiastic commitment to this vision. Under Annette’s leadership, Istonish has grown and evolved to serve government agencies, private companies large and small, and mission-driven not-for-profit organizations throughout the Mountain West.

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