Last week’s Presidential election surprise has created great uncertainty regarding existing laws, regulations, and policies. With the Department of Labor’s expanded “fiduciary” standard set to become effective in April, many have offered their opinions on the prospects of that occurring as scheduled. It may very well become effective as planned. It may be delayed. It could even be wiped out. We really have no way of knowing at this point in time, particularly if the magic eight-ball approach to answering policy-related questions continues. Uncertainty is likely to prevail for the next few months, if not longer.
Whether the fiduciary standard will expand as planned – that is one question. The risks of relying on a non-fiduciary and the value of a fiduciary, however, are entirely different questions. Fortunately, we have clear and certain answers to those questions.
Certainty: Risk of a Non-Fiduciary. It is well established that non-fiduciaries have significantly more freedom to put their own interests first and significantly less reason to proactively work in their clients’ best interests. The Department of Labor reminded us:
- “Recent studies show that the vast majority of Americans understandably but mistakenly believe their financial advisers are required to act in their clients’ best interest. The reality is very different.”
- “Many brokers, consultants, and advisers hold themselves out as expert advisers, but are not, in fact, required to adhere to a fiduciary standard.”
- Today, “many investment professionals, consultants, and advisers have no obligation to adhere to ERISA’s fiduciary standards or to the prohibited transaction rules, despite the critical role they play in guiding plan and IRA investments.”
- “Under ERISA and the Code, if these advisers are not fiduciaries, they may operate with conflicts of interest that they need not disclose and have limited liability under federal pension law for harms resulting from the advice they provide.”
- “Non-fiduciaries may give imprudent and disloyal advice; steer plans and IRA owners to investments based on their own, rather than their customers’ financial interests; and act on conflicts of interest in ways that would be prohibited if the same persons were fiduciaries.”
- “In other words, today’s rules allow some financial advisers to put their bottom line ahead of their clients’ retirement security.”
Certainty: Value of a Fiduciary. Similarly, the value of a fiduciary is well established. Federal courts have instructed that a fiduciary’s duties are the highest duty known to law. Having your investment adviser be a fiduciary is important because “it means that they are required to give you advice that is in your best interest, not their own.” Without regard to whether a regulation forces various investment professionals to perform services in a fiduciary capacity, those that serve in a fiduciary capacity will have undertaken the highest duty known to law and must put their clients’ interests first. Those certainties will persist, even in uncertain times.
 “Protecting Retirement Savings FAQs”, United States Department of Labor, Question 6.
 “Protecting Retirement Savings FAQs”, United States Department of Labor, Question 11.
 81 Fed. Reg. 20,946 (Apr. 8, 2016).
 Donovan v. Bierwith, 680 F.2d 263 (2d Cir. 1982), cert denied, 459 U.S. 1069 (1982).
 “Protecting Retirement Savings FAQs”, United States Department of Labor, Question 4.
Matthew loves to write. He also loves to think, though he’s probably a better writer than a thinker. He does not like to be on camera or in videos. This blog will allow him to write, challenge his ability to think, and, from time to time, test him with video blog entries.
He has a unique blend of legal and practical experience that helps us to serve our clients well. On the one hand, he has more than 12 years of private legal practice experience focusing exclusively on employee benefits, including time as a partner in an employee benefits boutique where he has represented clients in front of the DOL and IRS. On the other hand, he holds his FINRA Series 7 and 66 registrations and serves as the Director of ERISA Services for Qualified Plan Advisors.
Matthew likes to stay active. He provides fiduciary training, Investment Policy Statement design, and vendor oversight to our clients. He is an active member of the Employee Benefits Committee of the American Bar Association Tax Section, serving as Chair of the Defined Contribution Plans Subcommittee. He also has been appointed to the IRS TE/GE Gulf States Council and is a frequent speaker on regulatory developments, fiduciary responsibilities, and retirement readiness.
Most importantly, he stays active with his family. His wife, Laura, is the founder of REbeL, Inc., a not-for-profit organization. His three young boys are mixed up in far too many sports, and they enjoy traveling, watching college football, running with Dad, and rooting for the Huskers.
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