November 22, 2017
About 66 million Americans are expected to retire from 2015 to 2025, according to the Life Insurance and Market Research Association (LIMRA). Whether these individuals will be able to do so comfortably depends not only on how much money they save but also on the quality of advice they receive from their financial advisors.
Unfortunately, that advice hasn’t always been up to par, according to the U.S. Department of Labor. In April 2016, the department issued a new rule requiring all financial advisors who oversee retirement accounts to act under a “fiduciary standard” — including advisors who work on commission, such as broker-dealers.
“A fiduciary standard is the highest standard of care because it requires advisors to put clients’ interests above their own,” explains Sally Mullen, Chief Fiduciary Officer for U.S. Bank Wealth Management. “Prior to the new rule, broker-dealers usually applied a ‘suitability standard’ instead of a ‘fiduciary standard,’ which requires the advisor to make recommendations that are in the client’s interest — but not necessarily recommendations that put the client’s interest above their own.”
This new fiduciary rule, which is expected to go into effect this year, officially expands the definition of “investment advice fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA). In doing so, it automatically elevates all financial professionals who work with retirement plans or provide retirement planning advice to the level of a fiduciary, eliminating potential conflicts of interest by legally requiring them to put clients’ best interests first and other considerations second.