Why Your Doctor or Lawyer May Owe You a Higher Duty Than Your Broker

By Erika Jensen

When you visit your doctor for a checkup or medical emergency, you trust that your doctor will use his or her expertise to provide you with the medical care in your best interests. Similarly, when you retain an attorney, you expect that he or she will use their expertise to advise and handle your case in your best interest. Can you reasonably expect the same from your financial advisor? The Department of Labor thinks you should be able to; however, some industry groups believe otherwise.

In April of 2015, the Department of Labor rolled out the final version of a new rule intended to address the estimated $17 billion dollars lost each year by investors with retirement accounts through commission and fees. The final rule attempts to balance the need to both protect investors’ retirement accounts and allow broker-dealers to generate revenue. Additionally, the final rule expands the pool of individuals who are obliged to act under the constraints of a fiduciary duty, while continuing to allow broker-dealers to receive a variety of compensation, provided they are willing to adhere to a “best interest of the customer” standard. Under the rule, financial advisors for retirement accounts are required to either avoid payments that create conflicts of interest or comply with the protective terms of an exemption issued by the Department. Additionally, firms and advisors will be required to make prudent investment recommendations without regard to their own interests, or the interests of those other than the customer; charge only reasonable compensation; and make no misrepresentations to their customers regarding recommended investments.

As of June 9, 2016, numerous industry groups have filed lawsuits attempting to halt implementation of the Department of Labor’s fiduciary rule. Some of the groups include the Indexed Annuity Leadership Council, Life Insurance Company of the Southwest, American Equity Investment Life Insurance Company, Midland National Life Insurance Company, North American Company for Life and Health Insurance, and Market Synergy Group. The lawsuits allege among other things that the rule is arbitrary, capricious, and unconstitutional, and that it will ultimately harm investors rather than protect them.

Ironically, despite their push back, industry groups claim to be in support of a uniform fiduciary standard. As Dale Brown, CEO of the Financial Services Institute put it, “being pro-fiduciary is not something new.” Considering the pending litigation, however, this support seems to be a mere facade in an attempt to escape public distrust. Investors, specifically retirees, need to ask themselves, why do broker-dealers not want to be held to the same standard as those in other sectors such as doctors or lawyers? Furthermore, investors need to be comfortable enough to ask their broker those difficult questions regarding duties, commissions, and fees.