Department of Labor’s (DOL) fiduciary rule took another hit, and one expert says the latest development leaves consumers open to risks.
Office of Management and Budget approved DOL’s request for three amendments to the rule, which results in an 18-month delay in the rule’s full implementation. The fiduciary rule went into effect in June 2017 after a delay, but full compliance wasn’t required until Jan. 1, 2018. That deadline now is July 1, 2019.
The fiduciary rule holds financial advisers to a fiduciary standard, which means that the financial adviser must act as a fiduciary, or in the best interests of his/her client, and make fees “more transparent.” The rule, which was finalized in 2016, is opposed staunchly by the financial industry as well as the Trump administration.
Although the basic tenets of the rule took effect in June 2017, one of the amendments addresses the so-called best-interests contract exemption. Opponents of the fiduciary rule argue that this exemption should be eliminated, because it allows for class-action lawsuits against financial advisers.
However, this exemption opens up consumers to the potential that financial advisers won’t act in consumers’ best interests, because a lack of proper documentation means a lack of oversight.
“An adviser with fiduciary duty has an obligation to prove they did what’s in their client’s best interest,” says Sheryl Garrett, who founded Garrett Planning Network, which connects independent financial advisers to consumers. “Without proper documentation, how does one prove this?”
Consequently, consumers still have no guarantee until at least July 1, 2019, that all financial advisers will act in their best interest regardless of what an adviser might claim. Garrett believes that the advice that we provided before the fiduciary rule was finalized still applies: Hire only financial advisers who will sign an agreement that commits them to acting as a fiduciary.