Earlier this year, the Department of Labor released a ruling subjecting all financial advisors who provide investment advice for retirement accounts to meet a fiduciary standard. What has been interesting to watch are the reactions from both the insurance industry and those in the investment broker and advisor community.
Prior to this ruling financial advisors fell into one of two standards; they operated under either a fiduciary or suitability standard. Those who operate under the fiduciary standard are incented to operate in their client’s best interest. They are paid a management fee based on the total value of a client’s portfolio. The better their clients’ portfolios perform, the better they are paid. If the portfolio doesn’t perform well, they are paid less. Even if this type of advisor earns a commission on a particular transaction, it still must meet the fiduciary standard.
Financial advisors operating under a suitability standard sell investments that are “suitable” for their client and are paid a commission on each transaction or sale. This is what lead the Department of Labor to enact the new legislation as not all investments sold to clients were in their best interest. Sometimes they were in the broker’s best interests and pocketbook.
What shocked many insurance companies who sell annuities for retirement accounts is agents who sell fixed indexed annuities are now required to meet the new fiduciary standard meaning these annuities must be in the client’s best interest. The ruling is designed to protect consumers from receiving biased advice or being sold investments they don’t need or not in their best interest.
In late November, a group of attorneys representing insurance and securities brokers sued in a Dallas Federal court to overturn the Department of Labor’s ruling as it violates their free speech rights by limiting what advisors and agents can say to their clients. This is one of several lawsuits which have been filed seeking the repeal of the Labor Department’s ruling. While all of the earlier lawsuits have focused on the ruling being overly burdensome and expensive to implement, the Dallas lawsuit is the only one stating it violates the free speech rights of brokers and agents.
I’ve always operated Wise Insurance Group under a fiduciary standard even when assisting people with home, car, life, or business insurance which aren’t required to meet this standard. I believe operating in our clients’ best interest builds long term relationships built on trust. If I would not recommend a policy to one of my kids or close friends, I will not recommend it to someone who’s been referred to me.
This is why I find the lawsuit filed in Dallas, as well as the others filed elsewhere, repugnant. How being required to operate in a client’s best interest violates a broker or agent’s free speech is a mystery to me. Perhaps their product is lousy or would weaken their client’s financial position? Whether you are looking for an insurance or financial advisor, pick one who operates in your best interest and will advocate for you!
What do you think? Share your thoughts, questions, and experiences with me on my Facebook, Google +, and LinkedIn pages with me. I’d love to hear from you!