The DOL Fiduciary Ruling – What Does it Mean?

Apr 20 • Financial Planning • 943 Views • No Comments on The DOL Fiduciary Ruling – What Does it Mean?

By Joni Lindquist

You may have seen the announcement that the Department of Labor (DOL) announced a ruling this past week regarding fiduciary standards for advisors providing advice on client retirement accounts. While additional guidelines and more information could come out, this likely has very little impact for KHC and its clients, as we operate under a fiduciary standard already.

The DOL ruling appears to be aimed at other financial advisors, such as brokers, who earn commissions based on the products they sell and had previously maintained a suitability standard.  What’s the difference?

A fiduciary standard requires that advisor to act in the best interest of clients.  A suitability standard required advisors to offer products that were “suitable” for the client.  A suitability standard allows advisors to sell their own products or ones they were incented to sell to clients as long as they were “suitable”, but not necessarily “in the client’s best interest.”  The DOL seemed to question whether an advisor can act in a client’s best interests if they are incented to sell certain company products or funds.  The ruling requires firms to refrain from using incentives for advisors to act contrary to client’s best interest, and the firm must fairly disclose fees, compensation and material conflicts of interest.

The rule goes into effect April of 2017 with a transition period through Jan 1, 2018.  The ruling applies only to retirement accounts (e.g. 401k, 403b, IRAs) – meaning that the standard doesn’t hold for any other investment accounts.  It requires that anyone providing advice to clients on their retirement accounts must maintain a fiduciary standard.  There are other provisions in the ruling that creates new paperwork that advisors who are new to the fiduciary standard must complete and share with their clients.

KHC maintains a fiduciary standard on all client accounts– not just retirement accounts.  As a fee-only financial planning firm, the only revenue we receive are the fees from clients.  This helps to eliminate potential conflicts of interest.  So again, we don’t believe there will be any major changes for us or our clients.

Our view is that this ruling is a step in the right direction for consumers.  Our hope is that it will help reduce consumer confusion and create more transparency of fees for all types of financial advisors.

For help determining if your planner is a fiduciary or if you’d like to talk about your financial needs, schedule a meeting by clicking below, contact Joni Lindquist –jlindquist@makinglifecount.com, or call (913) 345-1881.

Photo credit: ota_photos via Foter.com / CC BY-SA

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