Interesting Angles on the DOL’s Fiduciary Rule #7


Posted on June 2, 2016, by Fred Reish in DOL Activity, fiduciary, prudent. Comments Off on Interesting Angles on the DOL’s Fiduciary Rule #7

This is my seventh article about interesting observations “hidden” in the fiduciary regulation and the exemptions.

There are three parts to the best interest standard . . .

  • The prudent person rule.
  • Individualization to the retirement investor’s circumstances.
  • The duty of loyalty.

See the three parts below. Interestingly, none of the parts uses the word “best.” In other words, “best interest” is just a label; the real requirements are prudence and loyalty.

  • Prudence: “. . . the fiduciary acts with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, . . .”
  • Individualization: “. . . based on the investment objectives, risk tolerance, financial circumstances, and needs of the retirement investor, . . .”
  • Loyalty: “. . . without regard to the financial or other interests of the Adviser, Financial Institution or any Affiliate, Related Entity, or other party.”

Moral of the story: Don’t let the label confuse you. There isn’t any requirement to pick the best investment . . . if such a thing exists. It’s just old-fashioned prudence and loyalty. The result is that investment advice to IRAs will often look like investment advice to 401(k) participants: good quality investments, appropriate asset allocation and diversification, and reasonable costs.

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