Department Of Labor Releases Proposal On Expanding Fiduciary Duties

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Department Of Labor Releases Proposal On Expanding Fiduciary Duties

Yesterday, the United States Department of Labor released a hotly anticipated and controversial proposal that would make financial advisers put their clients’ interests before their own when recommending retirement investment products.

The rule, which is staunchly opposed by numerous people in the brokerage community, will broaden the number of financial advisers subject to the fiduciary standard created by the Employee Retirement Income Security Act (ERISA) by removing a couple of exemptions that permitted advisers to push clients toward investment products that give brokers a tremendous upside, even if it is not in the best interest of the clients.

The goal of the rule is to end such conflicts by making broker-dealers who provide one-time advice to fall under the definition of investment advisers under ERISA. The second exemption that the rule will end is a clause stating that for a broker to be considered a fiduciary, the adviser and the client must agree that information provided by the broker was the primary basis for an investment decision.

“This boils down to a very simple concept: If someone is paid to give you retirement investment advice, that person should be working in your best interest,” Secretary of Labor Thomas E. Perez stated. “As commonsense as this may be, laws to protect consumers and ensure that financial advisers are giving the best advice in a complex market have not kept pace.”

The White House Council of Economic Advisers released a study finding that borrowers lose up to $17 billion a year on their independent retirement accounts due to their advisers’ conflicts of interests.

Among the changes included in the proposed rule is the creation of a so-called “best interest contract exemption” that would require retirement advisers and their firms to formally acknowledge their fiduciary status and commit to impartial conduct. The exemption, combined with clear disclosures of fees and other information, would allow investment advisers to collect fees that otherwise would be exempted from the law.

Despite this allowance, the financial industry and many members of Congress from both parties oppose the rule. The industry argues that the changes sought by the Obama administration would eliminate many products and services that are currently available to lower- and middle-income Americans and make it harder for them to save for retirement.

The Labor Department sent the rule to the Office of Management and Budget for a review in February, and industry groups blasted that short review. A typical OMB review takes approximately 117 days, according to the Financial Services Institute.

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies or complete the contact form.

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