The Fiduciary Rules has been released – how will it affect you?

A fiduciary is generally someone who has to put the best interests of the beneficiaries first, instead of their own.  While most people think that their investment advisor does that, it much less clear in the investment adviser community, which I have to say has always been somewhat concerning to me.

If you are a business owner, and have a retirement plan, as Trustee of that Plan you are in a fiduciary role- you have to put your employees best interests first.  This means applying the “prudent man” rule to selecting and monitoring investments, among many other things.  But shouldn’t your investment advisor be held to the same standard?  of course.

But that hasn’t been the case.  Under the new rules, you should be paying your adviser on a fee-based contract, and not based on commissions;  that is going to mean ALOT of plans have to change in the next year.  Commission-based payments have a alot of room for “issues” and conflict of interest.

As an example, say the adviser chooses the XYZ large cap fund, which has a cost ratio and commission structure higher than the similar ABC fund.  Did they do that because it is a “better fund” or because it pays more?  Are you prepared, as plan trustee, to defend the definition of “better fund” to your employees?

I have been fee-based in almost all my corporate accounts for years, because I believe that we should agree on what I am paid to do, and how much I get paid to provide those services.

In the end, the fiduciary rule changes may mean very little to you – or they may require wholesale changes to your plan.