The Fiduciary Rule

The High Standard That Large Wirehouses Have Fought to Avoid for Decades

By now you may have heard of the Fiduciary Rule. Of course, if your financial advisor is already a Registered Investment Adviser (RIA), it’s likely you already know that your advisor is held to the fiduciary standard, as defined by the Federal government since passage of the Investment Advisors Act in 1940. Since 1975, financial advisors have been subjected to a 5-part test by the Department of Labor (DOL), which then deems them a fiduciary for their clients. They therefore must put the interests of their clients ahead of their own.

However, not everyone providing investment advice is held to the same standard by regulators.

Broker-dealers are regulated by the Financial Industry Regulatory Authority (FINRA), which holds them to a lower standard, called the suitability standard. As the DOL explains, this is costing Americans Billions of dollars in hidden fees and bad investments: 

A system where firms can benefit from backdoor payments and hidden fees often buried in fine print if they talk responsible Americans into buying bad retirement investments with high costs and low returns instead of recommending quality investments isn’t fair.


Some of the nation’s largest investment firms have been held to this lower standard for decades. The standard, which requires only that investment advice be suitable to the client, has shown to produce conflicts of interest, primarily when considering fees. Because the client’s interest is not above his own, the broker-dealer advisor, who is loyal to the broker-dealer, may have more incentive to generate fees than to provide the best investment advice available to his client. This core distinction enables suitability advisors to sell products and services that profit their companies through commissions and hidden fees regardless of what’s best for their clients. All without running afoul of regulators.

So, for years now, the DOL has been trying to apply its fiduciary standard across the board to all advisors. Even though it first proposed the rules changes in 2010, the furor from the financial industry and both houses of Congress was so great that it pulled its proposal. But it ultimately released the final version of the rule this April, which is slated to be implemented April 10, 2017.

Already, there has been pushback in Congress, again. But this time it looks likely that the rule will remain. Many aspects of the industry will have to be examined, and it will be interesting to see how large broker-dealers react – but for clients who’s advisors already meet the fiduciary standard, the only question that remains may be how come this took so long anyway?

This material is provided for informational and educational purposes only. Nothing herein should be construed as the provision of personalized investment advice. There is no guarantee that the views or opinions expressed herein will come to pass. This material contains certain forward-looking statements that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of their dates. Additionally, this material contains information derived from third party sources. Although we believe these third party sources to be reliable, we make no representations as to the accuracy or completeness of any information prepared by any unaffiliated third party incorporated herein, and take no responsibility therefore. Investing in the stock market involves gains and losses and may not be suitable for everyone. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bogart Wealth, LLC [“Bogart Wealth”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bogart Wealth. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Bogart Wealth is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bogart Wealth’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.bogartwealth.com
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