2017 Q1: The Fiduciary Rule – Does it affect me?

Posted by on May 3, 2017 in MFA Quarterly Commentaries

We wanted to bring an important development in the financial services industry to your attention: The Fiduciary Rule. To put it briefly, the Fiduciary Rule is a regulation that requires advisors to act in their clients’ best interests. With the new administration, the rule has been delayed and there is a great deal of confusion and uncertainty about its future. Whether you have never heard of it until now or are deeply familiar with it, we want you to be aware of what it is and understand our position on it. In the following pages, we have a Question and Answer piece to further explain the proposed advisor Fiduciary Rule and how it might affect you.  If this raises any questions or you have comments, please let us know.



What is it?

The Fiduciary Rule requires advisors to act in their clients’ best interests.  It applies only to retirement accounts like IRAs and 401(k)s.  Many advisors and brokerage firms have been subject to a lower standard of care called “suitability”, meaning that they just need to place a client in an investment that would be deemed suitable for an investor in their situation. As conflicts of interests arise, a fiduciary advisor is required to put their clients’ interests ahead of their own, while an advisor held to the suitability standard is not required to do so.

Didn’t we already have this?

Yes. MFA operates as a Registered Investment Advisory firm and we serve our clients for all managed accounts as fiduciaries. Not all advisory firms are bound to this standard, which can result in people mistakenly thinking their advisor is acting (or required to act) in their best interest when they are not.

Why just retirement accounts?

Regulators such as the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) which oversee advisors and advisory firms have not acted to increase standards.  In October 2010, the Department of Labor started working to codify this higher standard of care for the accounts under their purview – retirement accounts.

Who supports it?

Consumer watchdog and financial planning organizations such as The Consumer Federation of America, the Financial Planning Association, The Certified Financial Planning Board of Standards [the keeper of the CFP® certificate] amongst others.

Who is opposed? 

Industry trade groups such as The US Chamber of Commerce, the Securities Industry and Financial Markets Association (SIFMA), the Financial Services Roundtable (lobbying organization representing 100 of the largest financial services companies).

Why do they oppose it?

If something goes wrong in an investor’s account, it is much easier to defend a decision that an investment was suitable vs. in the best interest of the client. A number of financial industry companies that currently advise clients under the suitability standard oppose the Fiduciary Rule as it is estimated to reduce brokerage industry revenues by $11 billion1 over the next four years due to forgone commissions and the cost of complying with new regulation.

What is MFA’s position?

We wholeheartedly support this rule.  Regardless of how an advisory firm is structured or advisors are compensated, conflicts between what is better for the firm and the client will inevitably arise.  We not only embrace our duty to place clients’ interests ahead of our own, but believe all advisors and financial professionals should do the same for their clients.

What is the effect on me?

The proposed rule would have little effect on you with respect to the accounts we manage for you. We’ve always acted as your fiduciary and will continue to do so.  If you have brokerage accounts with other advisors, you might ask them where they stand on this issue.





1 Investment News September 21, 2016