The discrepancy between fiduciary and suitability standards of care is an important issue for those seeking transparency from their wealth advisors. Recently, there have been efforts from regulators to increase the standard of care for clients in their financial advice relationships.
In 2016, the Department of Labor (DOL) wrote into law a fiduciary standard of care for all ERISA assets (employer-sponsored retirement plans such as 401(k) accounts). The law was heavily criticized by many industry groups for a number of reasons. Implementation was continuously delayed and is now on an indefinite hold. DOL plans to announce a revised version of the rule in the second half of 2019, but no firm timetable for implementation has been made available.
During the DOL fight, a popular criticism is that while the spirit of the rule is good for consumers and uncovers some of the hidden conflicts in the industry, the DOL is not necessarily the appropriate group to regulate advisors that may have fallen outside their scope before the new rule.
Now the SEC has stepped in and is working on its own version of the regulation called Regulation Best Interest (or Reg BI, for short). Industry insiders have dubbed this proposed regulation as “Suitability Plus.” Reg BI does not go to the standard of care a fiduciary has, but it expands on FINRA’s suitability standard in an effort to disclose discreet conflicts of interest. The overarching standard of care progresses from recommendations that are suitable for the client’s goals/objectives, pushing broker-dealers to exercise “reasonable diligence, care, skill, and prudence” when making recommendations.
While we are certainly interested in the outcome of the proposed legislation, it realistically won’t affect how we conduct business or advise our clients, as we have always embraced the fiduciary standard of care. It is the most foundational value of our company. Sanderson Wealth Management is an SEC-registered RIA, and subject to regulation under the Advisers Act of 1940. Members of Sanderson’s advice team are additionally subject to the codes of ethics and standards of care for their professional organizations – CFP Board, Investments & Wealth Institute™, AICPA, CFA Institute, etc.