Is the Fiduciary Standard a Plus for Investors?

A look into whether it will make a difference in the quality of the advice they receive.
This year, the Department of Labor is scheduled to implement new rules regarding retirement planning. Under these rules, any financial services industry professional who makes investment recommendations to workplace retirement plan participants or IRA owners in exchange for compensation will be considered a fiduciary.1
What does that mean? It means that this person has an ethical and legal duty to provide advice that is in your best interest.1 
The fiduciary versus the suitability standard
Many investment and retirement planning professionals have reacted to the DOL’s move with “We already do that.” After all, the suitability standard – something very close to a fiduciary standard – has been in place in the financial services industry for decades, and numerous financial services professionals already serve their clients as fiduciaries. 
But many argue the suitability standard, which emerged in the brokerage industry decades ago, may not go far enough to protect investors. It guides a financial services professional to recommend only investments that are “suitable” for a particular client, given his or her age, income, goals, and net worth. 
The DOL, too, sees a shortcoming in the suitability standard. Suppose there are multiple “suitable” investments that a retirement planner could recommended to a retirement saver (a common occurrence). Under the suitability standard, what is to prevent a retirement planner from suggesting and recommending the investment that could result in the most compensation for him or her, over the others? What if the alternate investment options are never mentioned? If this sort of thing happens, is the investment recommendation being made truly one in the client’s best interest? 
In this context, the fiduciary standard could make a real positive difference by lessening the potential for conflicts of interest to creep into an advisor-client relationship. It also encourages even more retirement planners to charge fees for services, rather than earning some or even all of their incomes from commissions.
While detractors think the new rules amount to overkill, and argue that an-across-the-board fiduciary standard will not make a difference in the quality of retirement planning or investment advice that retirement savers receive, this encouragement will nonetheless likely sit well with most investors, who naturally want less potential for conflict of interest. It is also sitting well with many retirement planners.
While exemptions to the rules can be made and while the rules will not apply to existing investment assets, the implementation of a broad fiduciary standard for retirement planning is good news and reduces potential dissonance in the relationship between the retirement planner and the retirement saver.1  

Citations
1 - money.usnews.com/money/blogs/planning-to-retire/articles/2016-04-08/the-new-retirement-account-fiduciary-standard [4/8/16]
2 - nytimes.com/2016/04/07/your-money/new-rules-for-retirement-accounts-financial-advisers.html [4/7/16]