What Does the "Fiduciary Rule" Mean to You?

By Todd Chyba on February 17, 2017

Overview

By now most people who follow financial news probably have heard about the Department of Labor (DOL) “Fiduciary Rule,” or “Conflict of Interest Rule” which affects ERISA-covered retirement plans and IRAs. But there has been so much uncertainty around the issue that it is difficult to pinpoint exactly what its effects will be, and even whether the rule will be fully implemented.

Todd Chyba
Indeed, it was under consideration for more than 15 years before finally becoming official as of April 6, 2016. There was quite a bit of speculation that the new Administration might delay the rule’s effective date of April 10, 2017, or scrap it altogether. What happened, basically, is that President Trump, on February 3, 2017, issued a memorandum that puts the ball back in DOL’s court to delay the rule by carrying out an “economic and legal analysis.”

This all may seem very confusing, but for clients of The Trust Company, the one thing to know is that regardless of whether the rule becomes effective, nothing changes with respect to the way that your accounts are managed or fees are incurred. Our relationship continues exactly as it is today, because we’re already a fiduciary. You can stop reading now.

 

What if You’re Not a Client of The Trust Company?

The rule was meant to expand the definition of who is a fiduciary. So, what is a fiduciary? Simply put, a fiduciary must act in the best interest of its clients, and put the client’s interest above its own. A fiduciary requirement sets a higher standard of ethics, transparency and accountability for financial advisors than the “suitability standard” that applies to most.

Most advisory firms that are not independent trust companies are subject to the “suitability standard,” which means that their investment recommendations are deemed appropriate if they simply meet the client’s needs. The DOL Fiduciary Rule was intended as a form of consumer protection through the application of a higher ethical standard to a broader range of investment advisors.

The rule mainly affects advisors such as insurance agents or brokers who are getting commissions on the investment products that they sell. On its surface, the rule would seem to be a good thing for clients of those types of advisors. However, one unanticipated effect seems to be that some retirement accounts that are fully funded and therefore no longer paying a commission would be converted to a fee structure that would now subject them to ongoing fees based on the account’s value.

The Bottom Line

If you’re already working with an independent trust company, congratulations! You’re already working with a fiduciary, and this rule doesn’t change a thing. The Trust Company is proud of our legacy as a locally owned and managed independent fiduciary. We’ve always operated with our clients’ interests as our number one priority, and we always will.

If you’re not working with a fiduciary and the uncertainty surrounding this Fiduciary Rule makes you at all uneasy, consider speaking with one of our experienced, independent Trust Officers today.

Todd Chyba
Todd Chyba is Assistant Vice President & Compliance Officer - Retirement Plan Specialist, based in The Trust Company's Manhattan, KS office. He'd be happy to discuss your individual or business retirement plan. Call (800) 285-7878 to schedule a meeting.