Skip to main content

You are here

Advertisement


Fiduciary Rule’s Effect on IRA Advice Looms

  1. The Department of Labor’s fiduciary rule is likely to have many effects, and a heightened risk of litigation against those who provide IRA advice is among them, argues a financial management firm.

    Shelby George, Senior Vice President, Advisor Services at Manning & Napier, argues that advisers would be wise to be aware of what they can do in acting in the best interest of their clients and managing litigation risk. “Financial advisers working with individual investors need to take note, since the fiduciary rule holds financial planners providing IRA advice to an ERISA-like standard of care,” she writes in a recent blog post.

    George asserts that the DOL rule and the standards it sets differ greatly from the fiduciary standard of care many registered investment advisers are accustomed to under securities law. She adds that the best interest of the client (BIC) exemption “creates a new contractual agreement between the advisory firm and the investor.”

    And that isn’t all, George says, adding, “In addition to holding planners providing IRA advice to the highest standard under law, the fiduciary rule also opens the door to unhappy clients filing class action lawsuits.”

    George suggests that advisers take note of 401(k) litigation and that it is now even more relevant to advisers that make recommendations to IRA-holders. She argues that this litigation offers three lessons advisers should heed:

    1. unhappy clients pose the highest litigation risk;
    2. fiduciary best practices evolve as industry capabilities and markets change; and
    3. “best interest” is unique to a client.

    “The Fiduciary Rule will undoubtedly change the retirement planning landscape. Amidst the uncertainty, the advisers who will benefit are those who can focus on a process that identifies their clients’ unique needs and best interest,” George concludes.