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  • James Tharin, CFA

We Call it the Golden Rule but Others Call it the Fiduciary Rule

Good Ethics is Good Business

There is a new law affecting the delivery of investment advice that is currently being phased into the regulatory mosaic of the financial services industry by the Department of Labor. The new law is known as the Fiduciary Rule. The goal of the new Fiduciary Rule is to prevent, minimize and disclose conflicts of interest when representatives provide investment advice on retirement assets. Acting as a fiduciary sometimes means advising clients not to take action like investing their money. Acting as a fiduciary can also mean advising a client to keep their pension instead of rolling it over to be invested with the investment firm. The DOL Fiduciary Rule is a much higher standard for the investment profession than the Suitability Standard that previously governed the stock brokers and insurance agents that worked with retirement assets. (For more about the difference between the Fiduciary Standard of Care and the Suitability Rule please click HERE.) Simply put, the Fiduciary Standard of Care means treating your clients in a professional and ethical manner by always putting their interests first. Emerald Asset Management has been operating under the Fiduciary Standard of Care since our inception in EVERY advisory relationship that we maintain.

Some points to consider:

1) The new law that is currently being rolled out in phases requires any adviser giving advice about retirement plan assets (including IRAs) to act in a Fiduciary capacity. The law even includes helping the client decide whether or not rolling their 401(k) or pension into an IRA is in the client’s best interest. (Spoiler alert – there are situations in which it is not in the best interest of the client to take the rollover but I haven’t heard of that advice being dished out very often.)

2) The new law does not apply to non-retirement accounts. That means that your ‘trusted adviser’ can now be held to the Fiduciary Rule in dealings with your retirement assets and the Suitability Standard when helping you manage your non-retirement assets – talk about confusing! If the big banks (you know which ones), insurance agents and stock brokers truly had your best interests at heart they would hold themselves to the Fiduciary Standard in ALL types of accounts and without a law requiring them to do so.

Many industry groups and annuity carriers have voiced strong opposition to the new DOL Fiduciary Law. Lawsuits aimed at stopping or delaying the implementation of the law have been brought by the American Council of Life Insurers, the National Association of Financial Advisors, the Indexed Annuity Leadership Council (the worst of the worst in my opinion) and the US Chamber of Commerce. The claim is that the small investor won’t be able to find adequate advice under the new DOL Fiduciary Rule but I think that’s just a smokescreen to cover up the real issue. The real issue is asymmetry of information – hidden fees, large commissions and shady sales tactics. After all, why should good ethics even need to be legislated? What honest adviser would be against acting in a professional and honest manner all of the time? At Emerald Asset Management, Inc. we believe good ethics is good for business. Hopefully the new law will cause more ‘advisers’ to follow the Golden Rule.

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