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How the Expanded Definition of “Fiduciary” Impacts Your Investments in 2017
Published Date : January 30, 2017
There has been great controversy lately about regulatory changes impacting the financial industry. One set of new rules in particular – the Department of Labor’s extension of the fiduciary standard to all those companies and agents providing services and advice to investors on their retirement assets – has generated both action and debate. DOL became responsible under ERISA, the Employee Retirement Income Security Act, passed in 1974, for regulating employer sponsored retirement plans. This new rule affects advisors to both these plans and investors changing companies or retiring and contemplating a rollover to an IRA. The changes will require costly and significant changes in the way financial services companies do business, and many banks, brokerages, and other distributors of investments would like to see the Trump administration reform, delay or scrap the new rule.
Stepping back for a moment, we acknowledge that the ethical responsibilities of financial advisors are not always clearly understood. Some advisors offer investment management and advice for a fee, while others sell products and are paid a commission. To add to the confusion some advisors do both, putting on different “hats” under various circumstances. In general, fee-based advisors, specifically those employed by Registered Investment Advisory companies (RIA for short), like Sand Hill, adhere to the fiduciary standard while those who accept a commission to purchase investment products are subject to the suitability standard. Banks, investment brokerage firms and insurance companies distribute investments and their agents are paid to do so. The essential difference between the two standards is the fiduciary standard is unlimited. It requires that fiduciaries do what is best for their clients at all times, so investments made on behalf of their clients must not only be “suitable” with respect to clients’ financial means, goals and risk tolerance, but also must be judged on the basis of quality, performance, liquidity, and all associated costs, among other attributes. All of this is not to say that the vast majority of professional advisors do not try to do what is right; and yet, incentives clearly can confuse the issue. Simply put, the suitability standard does not require advisors to recommend the best vehicles, only an appropriate one. DOL’s expanded fiduciary standard impacts all providers of retirement plans, having seen abuses under the suitability standard. Effective in April 2017, advisors managing or advising individuals or retirement plan sponsors (401K, 403b, and qualified pension and profit sharing plans) must operate as fiduciaries. Those recommending rollovers from employer sponsored qualified retirement account into IRAs must also abide by this high standard. So, if you have IRAs or other personal accounts managed by a broker or advisor who is paid a commission, sometimes or routinely, then be aware that the suitability standard will apply.
No one knows whether the Trump administration will relax, delay or even eliminate DOL’s rule. Changing an existing rule is difficult; however, if the government failed to defend the many lawsuits already launched, or didn’t provide funding to support enforcement, then this could compromise the rule. Regardless, investors should take this opportunity to confirm the standards to which their advisor is held. Sand Hill operates exclusively as a fiduciary so regardless of the ruling outcome we will continue to provide unbiased advice and investment management as we hold ourselves to the highest standard of care in the financial services industry.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
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