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New Fiduciary Rule Provides Important Protection for Retirement Investors

April 29, 2016 Blog

In April, the Department of Labor (DOL) released the final version of a new rule intended to protect retirement investors. The new rule, which begins to go into effect in April 2017 and becomes fully effective on January 1, 2018, provides that investment advisors and broker-dealers who offer individualized investment recommendations to retirement plan participants and IRA holders must always provide those recommendations with their clients’ best interests in mind.

If you think this sounds like something they should be doing already, you’re right. Many retirement investors are surprised to learn that their advisors are not necessarily fiduciaries who are required to put their interests first. Plan managers currently owe a fiduciary duty to plan participants; but, until the new rule goes into effect, brokers and advisors do not.

As a result, while investors who received self-interested advice from brokers and advisors often have other grounds to seek compensation for their investment losses, the DOL’s new rule will provide an important and relatively straight-forward argument for harmed investors to hold their brokers and advisors accountable when they let conflicting interests get in the way of doing what is best for their clients.

About the DOL’s New Fiduciary Rule for Retirement Investment Advice

We say “relatively” straight-forward because the rule is over 1,000 pages long, and contains more than 200 pages that define exactly when a broker-dealer or investment advisor owes a fiduciary duty to his or her retirement-investing clients. The rule also contains a “best interest contract exemption,” which allows brokers and advisors to receive compensation for recommendations that would otherwise be prohibited as long as they have a contract in place stating that they are acting in the best interests of their clients.

In addition, the rule only applies when a broker or advisor is providing individualized investment advice. As a result, they are not required to meet the fiduciary standard when:

  • Marketing themselves or their services without making an investment recommendation,
  • Providing commentary in newsletters and on talk shows, or
  • Providing asset allocation models that simply identify investment options without providing specific recommendations.

Nevertheless, the new rule finally provides a long-awaited and important protection to investors who, in many cases, have their entire life savings on the line.

Expanding Investors’ Rights Under ERISA

The DOL issued the new rule under the Employee Retirement Income Security Act (ERISA). ERISA protects employees who invest for retirement through their employers against various forms of investment fraud and other improper conduct.

While a skilled investment fraud lawyer already has a number of ways to seek compensation for aggrieved investors under ERISA, the DOL’s new rule should both help prevent brokers and advisors from making self-interested recommendations and further empower investors to claim compensation when they suffer improper losses. If you would like more information about seeking compensation for losses in your retirement account, we invite you to contact us for a complimentary consultation.

Speak with an Investment Fraud Attorney at Zamansky LLC

The ERISA lawyers at Zamansky LLC have recovered millions of dollars in compensation for investors in claims against their brokers and financial advisors. If you have suffered unexpected losses or received bad advice, we may be able to help. To find out if have a claim for compensation, call our offices at (212) 742-1414 or request a free consultation online today.