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DOL Fiduciary Rule

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If you missed the recent headline about the Department of Labor’s new “fiduciary rule,” do not despair – you likely fall in the majority of Americans struggling to keep up with the last headlines from our nation’s capital. On February 3, President Trump signed a Presidential Memorandum (more to follow on that) directing the Department of Labor to delay the new rule for 180 days, confirming speculation that the new administration plans to reverse course on the new regulations.

What is the new rule?
In short, the new rule requires all financial advisors to put their clients’ best interest above their own when providing investment recommendations, just as Foster & Motley has always done. The rule also increases disclosure requirements for prospective investments, including more specific and understandable information regarding fees of investment products.

Previously, brokers and other commission based financial salespersons were held to a standard known as suitability, meaning an investment recommendation simply had to be “suitable” for a client, whether or not it was the option that was in their best interest. The suitability standard has permitted the sale of investment products that generate substantial commissions for brokers and some advisors even though these products are often not the best investments for clients, given the high fees associated with them.

I thought President Trump signed an Executive Order cancelling the rule?
No. Contrary to initial headlines, the executive action was not in fact an executive action at all, but rather a Presidential Memorandum. The memorandum directs a review of the fiduciary rule by the Department of Labor to determine whether it is deemed to be economically feasible.

The actual guidelines have already been in place since June 2016, but the enforcement of those guidelines begins on April 10, 2017. Barring any new developments, the rule will be enforced beginning on April 10.

What’s next?
Given the time needed to perform the economic feasibility analysis, coupled with the lack of a confirmed Secretary of Labor at the time of this writing, it may be some time before the Department of Labor makes significant progress in changing the rule.

Of course, action by Congress or the court system (there are several pending lawsuits filed by industry opponents) could significantly impact the fiduciary rule. Or, there could be entirely new guidelines that supersede the existing rules! Regardless, the new administration has indicated a desire to see the (yet to be enforced) fiduciary rule eliminated or perhaps watered down – time will tell.

Subsequent to the initial Executive Order, the Department of Labor has issued a proposal to delay the rule from taking effect for an additional 60 days until June 9. It is likely that this delay will take effect – but, as we have seen, things can change quickly! (As of April 6, 2017 the rule has been officially delayed.)

Does this affect clients of Foster & Motley?
No! Foster & Motley is and has always been held to a fiduciary standard as a Registered Investment Advisor – that means, by law, we must act solely in your best interest. We are required to provide upfront disclosures about our qualifications, how we are compensated, possible conflicts of interest and any history of disciplinary action. As a fiduciary, we are legally compelled to always place your interests ahead of our own.

As a fee-only advisor, our advice is free from the conflict of interest inherent when recommendations are made on products that the advisor is being paid to sell. Our recommendations are strictly based on what we believe is in your best interest and not on products that may pay the most generous commissions.

As always, please feel free to reach out to us with any questions or concerns you may have.