Impact of the fiduciary rule on personal investment accounts

Wealthmanagement.us offers non-conflicted advisory services to the participants in non-profit organzation retirement plans.

The financial services industry is speculating that the newly issued ‘fiduciary rule’ issued by the Department of Labor will have wider implication than originally expected. The fiduciary rule, simply stated, is that the investment firm has a duty to manage the account in the client’s best interest. Previously the standard was simply that the firm could not do anything improper. Regulators believed that the impact was that fees on retirement plan participants were higher than otherwise would be the case. The financial services industry disputes that assumption.

Technically, the new fiduciary rule does not apply to regular personal, trust or taxable investment accounts. But we wonder whether investment companies wish to offer two levels of service to retail clients: using one set of disclosure documents and internal training for retirement accounts and another less stringent standard for all other accounts? We suspect not. The fiduciary standard rule may soon be the standard for all investment accounts.

I think the net effect is that more investors will utilize services that are disconnected from the investment firm. For example, a tax preparer might assist with the setup of a Simplified Employee Pension plan or an IRA account deposit transaction that goes into an existing index mutual fund. These transactions that generate little or no revenue for investment firms are of little interest and retail clients are already complaining about the lack of providers available to handle these transactions.

This past tax season I read complaints on social media from several tax preparers that they did not know who to turn to to handle these simple investment transactions. Accountants often fear running afoul of investment advisory regulations if they charge clients for these services. They may not be aware of the de minimis and other exceptions available under most states’ laws that would appear to apply to most of these situations.

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