September 2024 Brings Effective Date for Department of Labor ERISA Fiduciary Rule

Earlier this year, the Department of Labor issued its final language and other clarifications to the Retirement Security Rule which will become effective September 23, 2024.  This has been years in the making and aims to protect individuals in an attempt to ensure they receive unbiased advice as retirement investors.

What is a Fiduciary: Before we touch on what updates and clarifications were issued, let’s define what a fiduciary is in the sense of investment or financial advice.  The summarized version is that advisors and other financial services professionals that fall under the definition or claim to be a fiduciary must put their clients’ interests ahead of their own. 

Why was such a rule needed: Many of us have heard, or maybe have been subjected to practices by financial services individuals that we trust where after the fact, we find out what we have implemented is not exactly what we understood it to be.  All the while, the trusted professional benefitted immensely from the sale of a certain product or strategy.  Understand that financial services is a business and businesses are trying to make a profit.  However, it became clear that something was needed to try to regulate financial services in order to protect you, the purchaser of such services from harmful sales practices or services.

What changed in the 2024 update: To write out in detail all of what changed would make for a very long read.  If you are interested in the details, please reach out to us and we can certainly provide them.  In the meantime, here is a summarized list of some of the changes:

·         Broadened definition of “investment advice fiduciary”

·         Expanded definition of “investment advice”

·         Expanded definition of “retirement investors”

·         Prohibits conflicted compensation

·         Disclosure requirements by financial professionals about their fiduciary status and fees they charge

How should I use this information: Each consumer of financial service may use these new rules and definitions a little differently, but the general theme is the same.  The person you trust some or all of your life savings with should be providing advice that is in line with your goals and objectives and that is in your best interest.  This is not to say that the company or person you work with should not profit from that advice but there should be alignment.  You should ask yourself if the product or strategy they are selling aligns completely with your goals and objectives.  You should thoroughly understand how any product or strategy will benefit you first and them second.  Is the product or strategy flexible such that your situation changes it can change with you?  Do you get the sense that your professional is virtually sitting on the same side of the table as you?

I think time will tell whether these regulations will serve consumers well.  In the meantime, it is a step forward in protection from harmful practices by companies and professionals.