Our tax attorneys learned this week that financial advisers will now be expected to play by a new rule that has the public's best interest in mind. An average citizen may not know what it means for a financial adviser to act under the fiduciary standard. The standard...read more
Our tax attorneys learned this week that financial advisers will now be expected to play by a new rule that has the public’s best interest in mind.
An average citizen may not know what it means for a financial adviser to act under the fiduciary standard. The standard is defined by the Employee Retirement Income Security Act, which states that the financial adviser needs to act in the best interest of the client. Of course, this is a very basic definition, but it does get a little complex. It also states that the adviser must charge a reasonable fee to all clients to prevent unfair charges.
Of course, the advisor is expected to be an expert in the duties expected of a trained professional. All duties, skills, and attention to detail must be optimal. The financial advisor cannot have any conflicts of interests to ensure that the professional acts in the best interest of his or her client.
It should be noted that the rule only seems to require advisers to give fiduciary level advice on retirement accounts like IRAs or 401(k)s.
Consumers have probably received some information on these changes, which is likely going to change what kinds of services are offered and some of the prices they are used to. For example, fees for mutual funds and annuities will likely decrease. There are other investment options that will be likely lower.
Many financial advisers are probably going to move to a flat fee-based model rather than a commission-based model. Advisers who mostly work online might even opt for something like a subscription-based model to combat some of these price drops. There are other payment formats that some advisers might be exploring, and these are just some of them.
Just like with any shakeup of an industry, there will be several customers who are going to love the new pay structures or fees. There is also likely going to be a number of financial advisers who are not going to be too happy with some of these changes while others will love them.
Some do fear that these changes increase an advisor’s liability, and the cost of compliance might force the industry to drive prices up in the long run. This could mean customers are going to end up paying more for the same types of services.
The services provided must be compliant with this new regulation, so it should help more people trust advisers. It is also possible that some customers are not going to like the cost of advice, so it might drive some people away from the service.
There is no telling what is going to change in the industry, but it is important to start communicating these changes to customers so that they are aware. Most experts are very excited to offer this kind of promise to customers, and they believe it will ultimately prove helpful for the entire industry. Only time will tell how things will work, and hopefully, the changes help propel the