Sp e cial Pro mot io n
Life
Financial The “New” Fiduciary Rule BY DAN MONTE, J.D., EXECUTIVE VICE PRESIDENT & CHIEF FIDUCIARY OFFICER, CENTRAL TRUST COMPANY
Since the meltdown of the financial services industry in 2008, there has been concern about the standards to which investment advisors are held. The long-standing rule has been one of suitability: the recommended investment must be suitable for the customer, which sounds perfectly reasonable. However, one element of the new legislation for increasing the regulatory requirements on financial institutions called upon the Security and Exchange
“ Trust companies are already subject to fiduciar standards and always have been. For them, t fiduciary rule is not new at all.” Commission to investigate whether a higher standard— a fiducia y standard, the highest possible standard—was appropriate. That standard would require the advisor to put customers’ interests ahead of his or her own interest, and it would bar confli ts of interest. However, fi e years ago, the Department of Labor began a parallel regula-
Bank trust departments and trust companies, such as Central Trust Com-
tory project on fiducia y standards. On April 8, 2016, the final regulations were
pany, have generally been supportive of the new Department of Labor rule.
issued, and they applied a fiducia y rule in the context of retirement plans and
The reason is easy to understand. Trust departments and trust companies are
IRAs. The new rule takes effe t over a period of twelve to eighteen months.
already subject to fiducia y standards and always have been. For them, the
Under the rule, investment advisors to retirement plans and IRAs may have
fiducia y rule is not new at all.
to disclose the sources of their compensation to those whom they advise and they must always put the customer’s interest fi st.
Still, regulatory compliance is not cost free. The impact of the change on smaller brokers and financial institutions—coming on top of all the other recent
Some advisors are worried about the change because of the uncertainty
changes in financial services regulation—could be severe. Therefore, there has
created and the possible increase in lawsuits should an investment turn sour.
been a move in Congress to head off the Department of Labor rule, substitut-
But to be clear, the fiducia y rule is not a guarantee of investment success.
ing a legislative approach. The outcome of that effo t remains uncertain.
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