“Different standards have long applied to various types of adviser.”
The U.S. Department of Labor’s first attempt in years to revise rules guiding financial advice — released on Oct. 31 — pussyfoots around real problems, offering mild help but little comfort for consumers who need financial guidance now more than ever. This fight over a fiduciary standard for financial advice — requiring all advisers to put a customer’s best interests first — has been going on for close to 50 years now, largely because spineless legislators and mealy-mouthed financial services companies don’t want to give up old ways stemming from times when the public didn’t know enough about its finances to manage them actively. In all that time, progress has been slow and legislative advances mostly ineffective.
This latest Labor Department announcement was more of the same. A fiduciary is a person (or organization) who puts their clients’ interests ahead of their own; they have a duty to preserve good faith and trust. That’s exactly what most people thought they were getting with a financial adviser, insurance agent or broker, but the reality is that different standards have long applied to various types of adviser. Rather than holding everyone in the financial services world to a fiduciary standard, many advisers had only a “suitability standard,” requiring them to sell products deemed “suitable” for the client. Agents who sold products on commission could legally steer clients towards items that paid more, even if it provided a lesser outcome for the consumer, provided the product was “suitable” for the client. The Department of Labor has been working on the issue through multiple presidential administrations. In 2016, under the Obama administration, the department finalized a rule that should have helped — though it was limited in scope too — but which was subsequently struck down in federal court. In 2020, the Labor Department issued Pro …
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