Ronald Fatoullah & Associates - Elder Law

Be Cautious When Choosing a Financial Professional

Be-Cautious-When-Choosing-a-Financial-Professional-Dplic-13961914-270x179.jpgBy Ronald A. Fatoullah, Esq. and Stacey Meshnick, Esq.

{3:8 minutes to read} Prompted by concern that many financial advisors may not be acting in the best interest of their clients, in February 2015 President Obama had directed the Department of Labor (DOL) to draw up rules that would require financial advisors to act like fiduciaries. A fiduciary must provide the highest standard of care under the law. The "fiduciary rule" was originally scheduled to be phased in during the period of April 10, 2017, to January 1, 2018.

A U.S. court of appeals has now reversed the DOL rule intended to prevent financial advisors from steering their clients toward retirement investments which, although they may be "suitable," may not be in their best interest due to hidden costs and fees. The Securities and Exchange Commission (SEC) has proposed new regulations to at least partially address the same problem.

The fiduciary rule required all financial professionals who work with retirement plans or who provide retirement planning advice to act as a fiduciary, bound legally and ethically to meet the higher standards of that status. While the new rules were likely to have had at least some impact on all financial advisors, it was expected that those who work on commission, such as brokers and insurance agents, would be impacted the most.

The fiduciary standard is a much higher level of accountability than the "suitability" standard previously required of financial salespersons, such as brokers, planners, and insurance agents, who work with retirement plans and accounts. "Suitability" means that as long as an investment recommendation meets a client's defined need and objective, it is deemed appropriate. Under a fiduciary standard, financial professionals are legally obligated to put their client's best interests first, rather than simply finding "suitable" investments. The new rule would have therefore eliminated many commission structures that are common in the industry.

Several industry trade groups sued to overturn the fiduciary rule, arguing that the DOL overstepped its authority in enacting the regulation. A federal court judge initially upheld the rule, but in March 2018, the U.S. Court of Appeals for the Fifth Circuit overturned it. According to the court, the DOL did not have the authority to enact the rule. The court criticized the DOL for overstepping its boundaries into an area that should be handled by the SEC.

While the fiduciary rule might be dead for now, the SEC has proposed new regulations that would require investment advisers to act in the best interest of their clients when recommending an investment. It also requires brokers to disclose or mitigate conflicts of interest. The proposed regulations do not, however, define what "best interest" means, which may cause confusion for brokers and consumers. The SEC accepted comments on the regulations until August 7, 2018.

Even if the SEC's regulations are approved, they do not solve every problem. Consumers should always use caution when selecting a financial advisor. In particular, consumers should check their financial advisor's experience and credentials and beware of false credentials.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Stacey Meshnick, Esq. is a senior staff attorney at the firm who has chaired the firm's Medicaid department for over 15 years. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also a partner with Advice Period, a wealth management firm, and he can be reached at 424-256-7273.

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