The Fiduciary Rule for Financial Advisors

As legal advisors it is crucial for our clients to trust us.  Without trust, clients cannot be confident in the information and guidance we give them.  Many of our clients also work with financial advisors.  In our firm, we have come to know and respect the way many such advisors conduct their practice on a similar basis of competence and trust.  The clients of financial advisors certainly need to trust the advice they receive.  And similar to the legal profession, financial advisors already have a variety of ethical rules they must adhere to.  But a new Department of Labor (“DOL”) rule is sure to pose some new challenges to financial advisors.

The so-called “Fiduciary Rule” was originally proposed under the Obama administration.  A fiduciary by definition is obligated to act in the best interests of another.  The new Fiduciary Rule obligates financial advisors to act in the best interests of their clients.  Pro-consumer groups have lobbied for such a rule for years.  According to a 2015 report by the White House Counsel on Economic Advisors, Americans lose about $17 billion from retirement savings every year because of bad financial advice from advisors with conflicts of interest.  The clear intent of proponents of the Fiduciary Rule is to try to lessen the impact of such conflicts of interest. 

Currently, advisors are just obligated to suggest financial products that are suitable investments, but not necessarily the best investments.  The new rule will require all financial professionals who offer advice related to retirement savings to not accept compensation or payments that would create a conflict unless they have an enforceable contract agreeing to put the client's interest first.  Advisers also would have to disclose any conflicts to the client and charge reasonable compensation.

The Trump administration is generally in favor of governmental deregulation.  In April 2017, Trump signed an executive order delaying the effective date of the Fiduciary Rule by 60 days and he called for additional review of the rule, seemingly setting the stage for a possible repeal.  Yet the Department of Labor has indicated that the rule has in fact become effective as of June 9, 2017.   Nonetheless there are many in the financial services industry that remain confident that the Trump administration will eventually take steps to soften the rule.

What are the downsides to the Fiduciary Rule? The Rule will inevitably expose financial advisors to greater liability.  Therefore good financial advice will probably become harder to obtain.  Advisors will need to charge more for their services and they will necessarily become pickier about who they take on as clients in the first place.  Another concern is that the rule may drive many smaller, independent advisors out of the business entirely.  In 2011 a similar rule was passed in the U.K. and the number of financial advisors operating there has dropped 22.5% as a result.  Clearly, it is too early to tell if there will be a similar reaction in the U.S. but some industry changes should be expected.

If you have any questions about the issues presented above or care to discuss any other planning issues, please call us at 860-769-6938, visit our website at or email us at



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