The Fiduciary Rule and What it Means for You

The Fiduciary Rule



For years Department of Labor (DOL) regulated the quality of financial advice rendered regarding retirement accounts under The Employee Retirement Income Security Act of 1974 or “ERISA”. Not surprisingly many things have changed since 1974, the way people save and manage their retirement nest eggs is no exception. The biggest trend we witnessed since ‘74 is the decrease in Defined Benefit Plan use; the good ol’ days when people worked for one company all of their lives and comfortably retired on a pension, are nearly gone. On the other side we witnessed a great surge in the use of IRAs and 401K plans, or Defined Contribution Plans. The landscape has changed and rules governing retirement savings and advice had to change as well.


The “DOL Fiduciary Rule” was published on April 8th, 2016 and set to be applicable as of April 10th, 2017 then delayed for 60 days till June 9th, 2017 allowing financial services companies and professionals time to prepare. Certain portions of the new regulations are set to be implemented on January 1st of 2018. Currently we are witnessing a well publicized back-and-forth to rescind/change/delay the new regulations; each side with their own very valid reasons, as it usually is in politics. Let’s take a closer look at what changes new regulations might bring to the industry.

The Difference

In 1974 The ERISA established a Suitability Standard which states that a broker can make recommendations to investors that are suitable based on one’s personal situation, but does not require that recommendation to be in ones best interest. For example; let’s say you walk into a Toyota dealership and list features you want in your new vehicle, and it is best described as a Ford F-150 Pickup Truck. Under the old rules the salesperson could recommend a Toyota Tundra, make the sale and collect the commission. You walked away with a car that is somewhat suitable to your needs, but it is not what’s best for you. It is easier to see if something does not fit your needs when it comes to something as tangible as an automobile, but can be a whole lot more difficult when dealing with intangible and often confusing financial products. The Fiduciary Standard requires that advisers act in good faith and trust, and put client’s interest ahead of their own, even if doing so is not in the fiduciary’s best interest. So, under the Fiduciary Standard the salesperson would be legally bound to tell you that you were really describing a Ford F-150 Pickup Truck and that it was not something they could sell you since all they sell are Toyotas. No sale and no commission to the car salesmen but the client would then walk over to the Ford dealership and purchase the car that matches their needs perfectly and is therefore in their best interest to own.


The intent of the ERISA was to regulate retirement savings, advice and practices related thereto; same intent extends to the new Fiduciary Standard. That means that any and all financial professionals offering advice, management and/or products for retirement accounts such as your typical Traditional and ROTH IRAs or more complex 401K, 403B or 457B Plans, etc. are covered and subject to the Fiduciary Standard. The new rule however, does not cover taxable transactional accounts or accounts funded with after-tax dollars. Which means that your typical non-qualified investment account is not covered by the new rules and your stockbroker does not have to have your best interest at heart when calling you with another “winner”, buyer beware.

Movement within Financial Services Industry

At this point one might be thinking: Has there never been anyone in the financial services industry that had the moral compass to put their client’s interests first? The answer is “Yes”, there has; and the number of firms/individuals is rapidly growing with or without the help of the new Fiduciary Standard rule. Companies that identify as Registered Investment Advisers or “RIAs” have had their client’s best interests at heart long before any discussions about making it a law took place on the Capitol Hill. The idea behind RIAs that makes them appealing to savers and investors is that RIAs are built on even more stringent Fiduciary Standards than the new law puts in place. The idea of aligning clients’ interests with those of the company which serves them has been the major driver of company growth and a differential factor from your stereotypical Wall Street broker. RIA’s do not charge commissions which eliminates a myriad of potential problems and abuses; selling or buying investments just to generate income for the company or the broker, discriminating products based on how much they pay the broker despite the performance, selling products that are completely unnecessary or even harmful to the client, etc.

The Effect

There has been a strong push from those who oppose the new regulations to do away with the rule completely or to modify it to limit its reach and impact. One of the reasons often cited by the opposition is the added costs and expenses the consumers and the financial services industry would have to face. The financial services industry had a little over a year to get their ducks in a row and become compliant with the new regulations. A lot of money has been spent developing new policies, procedures and marketing plans on Wall Street, even if the rule is completely nixed, there will be a lasting effect. Another unintended effect is a whole lot more educated consumers as a result of media’s coverage of the ongoing back-and-forth. People now know there are companies that put their client’s interests before their own and will choose to do business with them over companies that are there just to make a quick sale. Whether the rule is changed or completely abandoned, educated consumers voting with their dollars might be the best outcome.

Paragon Wealth Strategies is proud to be a Registered Investment Advisor and a fiduciary, growing WITH our clients and not at the expense OF people who entrust us with their lives before and during retirement. Paragon Wealth Strategies goes above and beyond the Fiduciary Standard rule by requiring every advisor to have a Certified Financial Planner designation and to continuously improve their competency level by ongoing education opportunities.

Michael M. Mikonis, CFP® is a CERTIFIED FINANCIAL PLANNER ™ practitioner at PARAGON Wealth Strategies, LLC.  His entire bio can be viewed here:

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Paragon Wealth Strategies, LLC), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Paragon Wealth Strategies, LLC.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Paragon Wealth Strategies, LLC is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  If you are a Paragon Wealth Strategies, LLC client, please remember to contact Paragon Wealth Strategies, LLC, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services. A copy of the Paragon Wealth Strategies, LLC's current written disclosure statement discussing our advisory services and fees is available upon request.

Happy New Year! What holds 2017?

What a year 2016 was – starting off the year with an immediate 14% plummet in the stock market, for no real reason other than to keep us all guessing.  Afterwards, the market recovered quickly only to settle into those ever-maddening “doldrums” that we had been stuck in for 2 years… basically going nowhere.  Finally, going into the end of the year, the market took off – emboldened by the possibility that a change in economic policy from a “tax and shift” strategy to a policy designed to enhance the economy’s top line revenue would bring the changes necessary to get the economy firing on all cylinders again.

In general, the economic data has not been bad of late – but nothing to get particularly excited about, either.  Much of the growth in bottom-line corporate earnings that we have seen lately has resulted more from cost-cutting than from developing new markets.  Signs that the economy has transitioned from the middle stage of the economic cycle (the “prosperity” or “sustained growth” phase) into the “Late Stage” of the economic cycle are becoming more and more apparent. 

The fact is that this particular expansion, beginning after the Great Recession ended in early 2009 – has been one of the most anemic expansion since the National Bureau of Economic Research (NBER) started tracking expansions economic cycles.  However, a close look at the economic indicators leaves considerable room for optimism.  The yield curve (a line that shows the difference in short-term and long-term interest rates) remains steep – meaning that consumers and businesses are still hungry for capital and are willing to pay more for it.   Housing starts and permits issued for new homes are continuing to trend higher, as well as are orders for durable goods, both signs of increasing future economic activity.

Donald Trump’s election has stimulated tons of speculation concerning a notably different economic policy than the previous one.  While there has been much hand-wringing amongst his detractors and up-whooping amongst his supporters – the fact remains that he has everyone’s attention and there is a different “feel” in the investment community now than was present a few months ago.  Most (but certainly not all) economists believe that Trump’s proposals will actually grow the economy and create jobs.  However, the fact that it represents a sharp break from the “globalization” policy that has generally been in place for the last 24 years will no doubt create some uncertainty – which will translate to volatility.  Additionally, it has been several decades since similar policies were tried, and the effects may be different from what economists expect – both good and bad – and we will discover them together.

At 89 months, our current expansion is the 3d longest on record, with the expansion from 1961 – 1969 being the second longest at 106 months.  While it is certainly possible that this expansion can grow to become the longest one on record, it is also likely that eventually we will again go through a recession.  Most recessions are nowhere as painful as the last two have been, and it is entirely possible that the next recession will be a merely a short slowdown versus a long and drawn-out period of pain.  Either way, we continue to monitor all of the economic data and recession probability models in order to be ready to transition to our Recession Protocols.  However – at present – the economic data looks strong and our recommendation is to remain invested at the maximum risk tolerance that is appropriate for each person.

Going forward, it is important to realize that gains from here until the end of the economic cycle are likely to be sporadic – with only several months’ performance driving the entire year’s gains.  It is also very likely that bonds and bond funds will struggle to generate meaningful returns as the Fed finally embarks on a series of interest rate increases in order to be in a position to make a “soft landing” possible when the next recession emerges.  As such, it is likely that a risk level that constitutes at least 40% equities (stocks) will be necessary to generate any return that can beat inflation.

To Roth or Not to Roth... That is the Question

As a fee-only financial planning firm, we spend significant time assisting clients with tax planning - planning one's actions in order to minimize the impact of taxes on one's financial situation.  As such, one of the decisions we must often address is whether or not a client should use a Roth IRA, or convert funds from a traditional IRA to a Roth IRA.  Generally this question is answered on an annual basis.

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Paragon Wealth Strategies
10245 Centurion Pkwy N. Ste. 106 Jacksonville, Florida 32256
Phone: (904) 861-0093