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:

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