How the new fiduciary rules affect you and your family

The U.S. Department of Labor Fiduciary Rule, a Halleran Financial Group Reflection

The United States Department of Labor (DOL) has been in a multi-year process of developing a new set of fiduciary standards for certain investment industry professionals. This process started during the Obama administration. The Trump administration has been, and still is, engaged in considering amendments to what is known as the “Fiduciary Rule.” Given this, we expect additional changes to the details of the rule as well as its possible forms of implementation. Naturally, an evolving situation creates challenges for regulators, broker-dealers, financial advisors and investors in understanding how and when the new rule will impact themselves and/or their business models. Despite the Trump administration's engagement in modifying the standards and deadlines for implementation, it is clear that a form of the Fiduciary Rule will still be implemented in the upcoming months.

Over the past few years, our broker-dealer, LPL Financial, has committed an immense amount of time and resources to working with the DOL and crafting solutions for investors that it believes are, and will be, compliant with the letter and spirit of the eventual formal standards. Central to the Fiduciary Rule is the directive that industry professionals deemed to be fiduciaries under the new rule must place the needs and goals of the investor above their own and those of their affiliated broker-dealer. This order of emphasis will, naturally, strike you as implicit and will surprise many that such has not been formalized in industry standards and regulations for years. The history of industry standards has been that different relationships and types of investment accounts have fallen under either a fiduciary standard or a suitability standard. This means that, yes, a fiduciary standard has been in existence for years, but that not all forms of relationships or account types have been covered by such. The new Fiduciary Rule seeks to combine the bifurcated structure of the past under one set of standards, as it relates to retirement accounts.

Investors will, of course, wonder how the new DOL Fiduciary Rule will impact them personally and their relationship with their advisor. The answer to this question is best obtained by asking one's advisor the direct question: How does the forthcoming DOL Fiduciary Rule impact our relationship and the manner in which you are working with me to manage my assets? I believe that the answer to this question can be particularly revealing about the account type, investments and fee structure in place in a client/advisor relationship. If the answer is confusing or raises concerns, I advise that one seek a second opinion on the response.

At the typing of this summary, 90% of the accounts and relationships of Halleran Financial Group are structured in such a way that they are already a fiduciary-based account or relationship and thus consistent with forthcoming standards. From its inception, I purposefully structured the HFG business model around my belief that financial advisors are and should be considered as fiduciaries. This emphasis has put us years ahead of the new DOL rule. The modest 10% of accounts/relationships that are structured as classic “brokerage” accounts at HFG originated as such elsewhere before being transferred here or have a unique makeup that made such an account the preference of the particular client. Part of the challenge of broker-dealers and companies like HFG has been how to accommodate these unique relationships under the forthcoming industry-wide rule. LPL has been aggressive in formulating new platforms that it believes adheres to new standards and will provide solutions for these investors. We will work toward having 100% of client accounts and relationships consistent within a few months.

Is my advisor compliant? Is his or her broker-dealer compliant? Will the DOL Fiduciary Rule mean that I will have to change my advisor, broker-dealer or investments? If my account or relationship was not already based on a fiduciary standard, should it have been? Does this say something about my relationship with my advisor? Where do I go to get answers to these questions and what do I do with the answers once I have them? I can conceive of these and numerous other questions that might flood into investors' minds as we move toward full implementation of the new DOL Fiduciary Rule. My advice on how to cut through the confusion is two steps: 1) Ask your advisor the question posed here in the third paragraph and 2) Get a second opinion – these are your investments; it's worth the time and effort to get one.

You can read the U.S. Department of Labor's publication: “Conflict of Interest FAQs (transition period) by clicking on the following link: https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/coi-transition-period-1.pdf I think that this document provides value on what to expect going forward.

I hope that this summary and the linked document from the DOL prove helpful to you in understanding the forthcoming changes to the investment industry. I am pleased to say that one of the core tenets of the Halleran Financial Group business philosophy is that we see ourselves as fiduciaries and that we have felt and acted this way long before such became formalized into an industry-wide rule. I believe that this speaks volumes about the HFG team putting clients first.

Please contact the office with any questions about what is here.

Warm Regards,

John H. Halleran
President and CEO

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.