The DoL, The Fiduciary Standard, and You

There’s been a lot of static in the media lately surrounding a Department of Labor ruling—commonly referred to as “the fiduciary rule”—and how it will impact the delivery of financial advice in the context of retirement accounts. In broad strokes, once the new rules take effect (sometime between 2017 and 2018, depending on which piece of the law you’re looking at), the people who are paid to make recommendations and decisions for your 401(k)s and IRAs will be legally required to put your interests ahead of theirs. In other words, make the best possible recommendation to you, regardless of any bias or incentive they may have.

Wait, what?

As it turns out, up until now, many financial professionals have only been held to the so-called “suitability standard”: that any product recommended be suitable for a person of your age, risk tolerance, time horizon, et cetera. This means that any recommendation, decision, or product needs only be suitable for you—not necessarily be “in your best interest.”

Let’s look at an example: Joe Investor works with Bob Advisor to manage an IRA. Bob has two products he can pitch to Joe: Fund A and Fund B. Both are nearly identical, suitable investments. Fund B carries a slightly higher expense (which means more compensation for Bob). Adhering to the suitability standard, Bob recommends Fund B, citing the characteristics of the fund which make it an appropriate choice and disclosing the fees associated with the product. Without ever mentioning Fund A, Bob is still adhering to the legal standard to which he is held. Conversely, a fiduciary would likely be obligated to recommend Fund A when choosing between the two, due to the benefits of lower expenses.

Surprised? You’re not alone. What feels like a common sense ruling has been mired in legislation, debate, and lobbying. The law itself is over 1,000 pages long and features more concessions than most proponents wanted to see. As implementation looms, industry players are sinking time and money into compliance and training.

From a consumer perspective, this all feels saddening and disenfranchising. Many plan participants took for granted that their advisors were acting in their best interest. What’s the good news? There are a lot of good advisors out there. To begin with, there is a huge swath of the industry that already adheres to the fiduciary standard.  You just have to know where to look.

Here are some questions you can ask your financial advisor in the context of the new ruling:

  • Are you a fiduciary? Hopefully, the answer is “yes.”
  • How are you compensated? Look out for commissions & sales fees, as they present intrinsic conflict of interest/bias. A “fee-only” advisor charges only for advice/management, receives no commissions, and is not biased towards a particular product or solution.  
  • Will this ruling change the way you do business? Hopefully, the answer is “no.”

Many consumers are using this ruling as an opportunity to raise never-before-asked questions with their financial advisors and plan administrators. While this can feel intimidating, it can also feel empowering. After all, the customer is always right.

Scott Mazuzan is a certified financial planner for F.L. Putnam Investment Management Company, an independent firm that provides investment management and financial planning services.  Scott grew up in the Portland area, studied at UNH, and traveled the world with his wife (Eliza) before returning home to Maine in 2011. Scott enjoys educating and empowering his clients through thoughtful financial planning and collaboration. He is the father of two boys, an avid runner, and enjoys the occasional show tune. You can follow his blog at

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