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Fiduciaries, Advisors, and Your Retirement Plans

| June 01, 2018
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The Department of Labor (“DOL”) has recently published new rules regarding retirement plans, financial advisors, and fiduciaries. While people have been seeing articles in the news on these new rules, many folks are wondering, “Does this affect me and my investments?” While the exact details and intricacies of the new rules are beyond the scope of this article, I thought it might be helpful to discuss the new rules in general terms.

What is a “fiduciary”?

A fiduciary is someone who manages assets in your best interest, usually in regards to a legal or financial transaction. Some examples of professionals that can have fiduciary responsibility are trustees, guardians, accountants, investment advisors, attorneys, etc.

Suitability Standard vs. Fiduciary Standard

In regards to working with a financial services professional, depending on the company and the transaction you are engaging in with this person, he or she is either adhering to a suitability standard or a fiduciary standard when making product or service recommendations.

The suitability standard requires that your financial services professional make sure that a recommended product or service is merely “suitable” for you, based on your goals, financial circumstances, etc.

The fiduciary standard, however, requires that your advisor put your best interests above his or her interests when recommending a product or service.

These two standards sound similar, but you can see the difference in the following example.

Say a financial advisor has two similar investments he is considering recommending to his client, but the second investment involves somewhat higher fees to the client and pays a higher commission to the advisor. Under the suitability standard, the advisor is free to recommend the second product, provided the fees aren’t exorbitantly high and the investment is suitable for the client in all other ways. Under the fiduciary standard, however, the advisor is required to put his client’s interests above his own and recommend the first product because of the lower fees, all other things being equal.

Current Financial Services Industry Standards

In the financial services industry, different types of investment firms are held to different suitability standards.

Broker-dealers are regulated by the Financial Industry Regulatory Authority (FINRA), which currently only requires broker-dealers and their registered representatives to adhere to the suitability standard.

Registered Investment Advisors are regulated by the Securities and Exchange Commission (“SEC”), which requires investment advisors and their investment advisor representatives to adhere to the fiduciary standard.

Many financial services companies can offer their clients both broker-dealer and investment advisory services, so your advisor may be adhering to either the suitability or the fiduciary standard, depending on the product or service being offered.

For example, say a client has two different portfolios with a financial advisor. The first portfolio is an IRA which the client pays a registered investment advisory firm a % fee to have it actively managed, and as such is being managed under the fiduciary standard. The second portfolio is an account held with a brokerage firm where the client does not pay the broker to actively manage, but the broker occasionally does share his thoughts on what should be done with the account, by recommending which securities to buy and/or sell. This guidance falls under the suitability standard.

How Do The New DOL Rules Change Things?

Among other things, the new DOL rules will require all financial advisors to act as fiduciaries and put your interests first when making recommendations involving retirement accounts such as IRAs and 401k type plans (including your university ORP, 401a, 401k, 403b, and 457b plans), particularly when recommending rolling your money out of one plan and into another.

Does it really matter?

You may be wondering if this all really matters.

On the one hand, it isn’t like advisors who must only adhere to the suitability standard are twirling their mustaches thinking of recommending investments that are not in their clients’ best interest. Any advisor worth his/her salt should always be placing their clients’ interests first, regardless of the recommendations being made. And those who don’t may not be in business very long as they will likely face competition by other advisors offering better services with lower overall fees.

On the other hand, yes, of course it’s always wise to work with an advisor who is being held to the highest standards possible and these new rules are designed to raise the standards across the industry and make them more uniform.

That said, regardless of what standard your advisor must adhere to in a given situation, you should always have a “buyer beware” attitude when considering investment recommendations and ask lots of questions. 

Certified Financial Planner (CFP®) Designation

One way to help ensure that your advisor is putting your interests first, regardless of the transaction being considered, is to work with a CFP® professional who has “completed extensive training and experience requirements and is held to rigorous ethical standards.” CFP® professionals are required “to provide their financial planning services as a “fiduciary”… acting in the best interest of their financial planning clients… and are subject to sanctions if they violate these standards.” Click here for more information on the CFP® Standards.

In case you’re wondering…

You may be wondering “What about you, Pete? What standards are you held to with your clients?”

The firm I am with, Verity Asset Management, is a Registered Investment Advisor that is regulated by the Securities and Exchange Commission (“SEC”). It’s important to note that the Commission does not endorse or approve any firm that they regulate. As a Registered Investment Advisor, the firm is currently held (and will continue to be under the new rules) to the fiduciary standard when managing a client’s portfolio for a % fee. Verity Asset Management has been managing client accounts as a fiduciary since 2005.

As one who works for such a firm, I am licensed as an Investment Advisor Representative, and as such, am also held to the fiduciary standard when advising my client’s on the accounts we manage for a % fee. As a Certified Financial Planner (CFP®), I am also held to the fiduciary standard when making any financial planning or financial product recommendations to my clients. I have been a Certified Financial Planner (CFP®) since 2007.


While the new DOL rules should help protect investors by raising the standards that all advisors are held to when advising on retirement accounts, investors must still be vigilant in considering investment recommendations made by their advisors.

Please note that these new rules aren’t due to be fully phased in until January 1, 2018, so I would not be surprised to see continued changes in the rules, and in the financial services industry as a whole, as we approach that date.

Feel free to contact me if you have any questions.


*This article was originally published 06/01/16 and was revised 06/01/2018.

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