What you need to know about the fiduciary rule

Associated Press

President Donald Trump’s administration is working to dismantle a complex set of financial rules including the “fiduciary rule,” which requires certain financial professionals to act in their clients’ best interests when providing retirement advice.

The rule’s future is unclear, but here’s what you need to know now:

WHAT IS IT?

The fiduciary rule requires brokers who sell stocks, bonds and other investments to meet a stricter standard that has long applied to registered financial advisers: being considered “fiduciaries” – trustees who must put their clients’ interests first.

WHAT HAPPENED?

The fiduciary rule had been set to take effect in April, but in late January Trump asked for a 90-day delay to review it.

The rule is part of the Dodd-Frank Act that tightened regulations after the 2008 financial crisis. Trump has called Dodd-Frank a “disaster.”

WHY IS IT NEEDED?

Brokers can provide financial advice as long as it’s “suitable” for the age, finances and risk tolerance of the client.

But no rule stops brokers from pushing an investment that earns a higher commission nor are they required to disclose that.

Registered investment advisers, on the other hand, are considered “fiduciaries” and must disclose any fees, commissions or potential conflicts of interest.

Proponents say the rule will close an ethical loophole for brokers and protect investors. Critics say compliance will be expensive and may shrink investment options.

GETTING GOOD ADVICE?

David O’Brien of Evolution Advisers recommends asking your financial professional to put it in writing if they are a fiduciary to you.

The National Association of Personal Financial Advisors has a sample fiduciary acknowledgment you can use as a template on their website .

Be warned, some advisers practice “hat switching,” in which an adviser has dual registrations. This allows them to act as a fiduciary for some transactions but not on others, which is why you want to have them acknowledge they are a fiduciary in all aspects of your relationship.