The Fiduciary Rule

There has been great deal of news lately about the Fiduciary Rule that the Department of Labor put into effect a few weeks back.  From the news, a number of questions may come to mind with this newly passed but highly debated rule.  Questions such as:

  • Is Trinity Financial Advisors (Trinity) a fiduciary?
  • What does this newly enacted rule really mean?
  • What potential impact does it have on my accounts and investments?  

To address the more personal questions, Trinity, is and has always been a Fee-only, Registered Investment Advisory (RIA) and fiduciary practice.  Therefore, we have already been carrying out the tenants of the recently enacted rule. 

 What is a fiduciary?

In a financial context, a fiduciary is required to act in the best interest of the person or party whose assets they're managing. Many people mistakenly think that all financial industry professionals are bound to this standard, but that's not the case.

For example, investment professionals who are not bound to a fiduciary standard have been known to recommend investment products because they offer the highest commissions or fees, not because the investment is in the best interest of the client.

Registered Investment Advisors are bound to a fiduciary standard that was part of the Investment Advisors Act of 1940.  In addition to putting the best interests of client ahead of their own, fiduciaries must also:

·         Act with prudence; that is, with skill, care, diligence and good judgment of a professional;

·         Make sure all investment advice is accurate and complete, to the best of their knowledge;

·         Avoid and disclose all potential conflicts of interest;

·         Clearly disclose all fees and commissions; and

·         Make investment recommendations that are consistent with the goals, objectives, and risk tolerance of their clients.

The fiduciary standard is much stricter than the "suitability standard" that applies to brokers, insurance agents, and other financial professionals. All the suitability standard requires is that as long as an investment objective meets a client's needs and objectives, it's appropriate to recommend to clients.

Who does the fiduciary rule effect?

The fiduciary rule is designed to make all financial professionals who provide retirement planning and investment advice or work with retirement plans accountable to the fiduciary standard, as opposed to the more relaxed suitability standard.

The point of the fiduciary rule is to ensure that financial planners and other related professionals will be legally obligated to put their clients' best interest first – not just to find investments that meets the clients' objectives. The rule covers professionals who work with defined-contribution retirement plans like 401(k)s and 403(b)s, as well as defined-benefit plans (pensions) and IRAs. 

Trinity has always been a fiduciary, we’ve been implementing this rule since our founding and for the entire time you’ve been a client with us. This recent news of the Fiduciary Rule does not impact your accounts at Schwab or how you work with us. To be clear, nothing changes.

Summary

There was strong opposition to this new standard from many people in the financial industry. Many retirement planning professionals are obviously not big fans of the fiduciary rule. They would rather be held to a suitability standard as the fiduciary standard will cost them money, both in terms of commissions and the added cost of complying with the new regulations.

The fiduciary rule is a positive development for investors. It has the potential to better protect millions of investors from paying unnecessarily high commissions on investment products, and from buying investment products and making decisions that aren't in their best interest. 

Hopefully it gives you peace of mind knowing your advisor, Trinity, has been and always will be a fiduciary practice.

If you have any further questions regarding this or any other issue, please don’t hesitate to contact us.

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