ActivePaper Archive Appeals court kills fiduciary rule, leaving small investors most vulnerable - Oklahoman, 8/23/2018


Appeals court kills fiduciary rule, leaving small investors most vulnerable


Kendall W. King is CEO of Castleview Wealth Advisors and author of the book “Abundance.”

Q: What was the fiduciary rule?

A: The Department of Labor’s fiduciary rule, also known as the “Conflict of Interest Rule,” took effect on June 9, 2017, following a six-year period of drafting. The fiduciary rule was important for consumers in that all financial professionals were finally required to put their customers’ interest ahead of their own when it came to managing their clients’ retirement accounts. Prior to inception of this rule, less stringent requirements permitted brokers and advisers to recommend investments that were merely “suitable.” The fiduciary rule left no room for advisers to conceal any potential conflict of interest, requiring that all fees and commissions must be clearly disclosed in dollar form to clients when dealing with their clients’ retirement accounts. Unfortunately for consumers, the U.S. Court of Appeals for the Fifth Circuit struck down the fiduciary rule on June 21.

Q: Why was the fiduciary rule killed?

A: Opponents argued that the rule made it too expensive for financial professionals and advisers to manage the accounts of small investors, and that it was possible for advisers to charge commissions without conflict. The court said the rule was “unreasonable,” and that not all commissions are bad, but that transparency of fees is key when charging for advice. The court concluded that the Department of Labor, which oversees the fiduciary rule, “overreached” with its mission.

Q: Who will be most affected by the court’s decision?

A: Small investors likely will be most affected by this decision because they may not have the assets required to qualify for some advisers’ services. Consequently, these investors are at risk of being sold unnecessary products loaded with commissions. Investors need to be vigilant when hiring a financial professional, and remain hopeful that legislators will find other ways to help protect their financial assets.

Q: How can investors protect themselves from companies with a conflict of interest?

A: With the death of the fiduciary rule, it’s imperative that investors do their due diligence when hiring a financial professional. Consumers should understand their adviser’s credentials and check out his or her background to ensure no complaints have been filed. It’s also important to ask how — and how much — an adviser is paid, and if compensation is different with different products. When it comes to investing, the best line of defense against nonfiduciary practices is to select a financial professional or firm with the registered investment adviser (RIA) designation. RIAs are required to operate as fiduciaries and in the best interest of their clients when managing not only retirement accounts, but also all type of accounts.