DOL encourages investors to ask advisers if they are fiduciaries

Agency provides a litany of questions for consumers as well as FAQs on technical compliance for advisers

Jan 13, 2017 @ 2:03 pm

By Mark Schoeff Jr.

Investors should press their financial advisers about whether the advisers are fiduciaries, how much they charge and whether they get paid more based on the investments they recommend, the Labor Department said Friday.

In a 16-page document posted on the DOL website, the agency provided a litany of questions for investors to pursue with their advisers based on the requirements of an investment advice rule that will be implemented beginning in April.

The DOL also posted Friday a 17-page document containing 35 questions on technical compliance topics that have been raised by financial firms. They cover how investment advice is defined in various interactions with clients and the difference between advice and education, among other areas.

These frequently asked questions follow a set of FAQs released Oct. 27 that focused on prohibited transaction exemptions.

The regulation requires financial advisers to act in the best interest of their clients in 401(k), individual retirement accounts and other qualified accounts.

Among the 22 questions the agency recommends investors ask their advisers: Will you acknowledge in writing that you are a fiduciary when you make investment recommendations to me? What fees and expenses will I be charged? Do you make more money if I buy some investments instead of others? What are your reasons for recommending a rollover from my current plan or IRA?

“Best-interest advice is a crucial component of a dynamic, profitable investment marketplace that meets the needs of workers and retirees,” DOL assistant secretary Phyllis Borzi wrote in a note accompanying the FAQs. “The Conflict of Interest Rule offers consumers a new level of confidence when working with investment advisers, and levels the playing field for the many advisers who have been giving best-interest advice all along.”

A fiduciary advocate praised the DOL's outreach to consumers.

“This is an excellent first cut at boiling 1,000 pages [of the rule] down to 16 pages,” said Knut Rostad, president of the Institute for the Fiduciary Standard. “But one client in 1,000 will read the FAQs. Advisers need to use this document to boil it down to two or three pages that are accessible and meaningful to investors.”

Financial industry trade associations are urging the incoming Trump administration to delay the regulation and then work with industry to shape a new fiduciary rule that covers all retail accounts.

Opponents assert that the DOL rule is too complex and burdensome and creates litigation risk for advisers that will drive up the cost of advice. Proponents say requiring brokers to act in their clients' best interests is necessary to prevent them from selling high-fee investments that erode retirement savings.

Rep. Joe Wilson, R-S.C., recently introduced legislation that would delay the rule for two years. It likely will get through the Republican-controlled House but faces a potential filibuster by Senate Democrats.

Given the difficulty of repealing and replacing — or even delaying — a rule that is already effective, it's likely that at least parts of the rule will survive.

The FAQs explained for consumers how one of the key provisions of the rule, the so-called best-interest contract, would work. The legally binding agreement allows advisers to charge commissions and collect other revenue that varies by product as long as the adviser agrees to act in the best interests of the client.

But the FAQs caution investors that they can't sue their adviser just because an investment loses money.

“The best-interest standard focuses on the financial adviser's behavior at the time he or she makes a recommendation to you, rather than how the investment in your retirement account turned out,” the document states. “The adviser's obligation is not perfection, but rather to make recommendations that adhere to a professional standard of care and that are based on your financial interest, without regard to his or her own competing financial interests.”


What do you think?

View comments

Recommended next

Upcoming event

Nov 20


Future of Financial Advice

An innovative conference dedicated to improving the client experience by enhancing digital technology, mainstreaming healthcare and optimizing wealth management strategies.The Future of Financial Advice will provide a forum for... Learn more


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print