The new Department of Labor (DOL) Fiduciary rule went into effect on June 9. In reality, according to the DOL, the ruling will not be enforced until January 1 of 2018. However, as of June 9, all advisors to retirement plans were required to comply with the new standard, which says advisors must act in their clients’ best interest.
This standard should seem like a no-brainer to anyone who sits in an employer’s seat; but it should also be an interesting reality check. Because the truth is, many advisors do not realize that they are not acting in the best interest of their clients, and they have been advising those clients in that same manner for years.
One reason is that in many cases, advisors’ actions have reflected the same structure that Wall Street has followed for years. Those previous rules allowed advisors to receive direct compensation from investments; and that has meant that advisors have represented the investment vehicle and not the client’s best interest.
While this has been legal, it has not necessarily been ethical. This is not to say that all advisors behave unethically, or that they line their own pockets. However, they have been living in a world where the compensation structure has benefited them more than the client. There is a nuance implied by this information, which should help employers form an opinion about how their retirement plans have been managed. And that nuance?
The employer should never have to question the investment process or the advisor’s integrity and ethics.
First, look at who is fighting the fiduciary rule. From where Granite Group sits, if your advisors are fighting the new rule with lobbyists, chances are they have not been acting in the best interest of their clients. Any movement to stop this process will tell you all you need to know about who “has your back” in the investment world.
Another thing that is important to understand is that acting “in the client’s best interest” doesn’t necessarily produce a better outcome for the investor. In order for the advisor to be a discretionary or nondiscretionary fiduciary, he or she should provide the employer with a documented investment process.
This is called a Duty of Care. It requires the fiduciary’s advice to be backed by research, and to demonstrate care, skill, prudence and diligence.
To ensure this process, the investment selections made must be comprehensive, non-conflicting, transparent and relevant. Many advisors may not realize their fiduciary obligation, which could then compromise an unsuspecting employer’s fiduciary obligation.
An employer needs to know that its company advisor is acting in its retirement plan’s best interest at all times. Whether that investment works out as well as hoped or expected, the employer should never have to question the investment process or the advisor’s integrity and ethics.
Granite Group was founded on this principle, and therefore we applaud this change in the rules. This is how the investor/advisor relationship was always supposed to be, and it should not be that way for retirement clients only.
We, as a firm, welcome the ruling and will continue to comply with the new fiduciary rules. We are structured to do what’s best for our clients and always will be.
We also see it as high time that Wall Street got onboard and stopped fighting what is clearly the right behavior. Trust is something that has been missing from the industry for years, and it is time to restore that trust. It is too bad it took a government regulation to force the activity that should be second nature.