The Department of Labor (DOL)’s Conflict of Interest rule, which would go into effect this April, has the potential to reshape the retirement planning industry, and extend the legal fiduciary standard to advisers who aren’t accustomed to it. But while news about the so-called fiduciary rule is on the top of advisers’ minds, their clients may be scratching their heads.
According to a new survey by Financial Engines, nearly half (46%) of Americans falsely believe that all financial advisers are required to put their clients’ best interests above their own when it comes to retirement assets. Out of those working with financial advisers, 41% reported not knowing whether their consultants were fiduciaries by law.
Overall, 66% of respondents said they don’t know the difference between a financial adviser acting as a fiduciary and one who is not. Sixteen percent said they were not sure. However, the majority of Americans value the concept of a fiduciary adviser once explained.
The survey found that 93% of respondents said they believe it’s important for a financial adviser to put his or her client’s best interest ahead of the adviser’s when providing retirement advice. Seventy percent said they would support making it a legal requirement.
Although it’s currently legal for financial advisers to receive commissions from mutual fund companies in exchange for steering their clients’ retirement assets into certain funds despite potentially higher fees and poor performance compared to others, the DOL’s fiduciary rule would reverse that.
When this concept was explained to respondents, 55% of workers said this potential conflict of interest would be “a bad thing for me.” However, 35% said they were not sure, highlighting the need for education. Financial Engines notes 74% of Americans don’t currently work with financial advisers.
Fee structures are cornerstones of ongoing ERISA litigation, which is becoming increasingly prevalent in the industry. Although the future of the fiduciary rule is uncertain under the Trump administration and the Republican controlled Congress, many firms are staying fiduciary focused and pushing ahead with efforts to meet compliance requirements.
For access to “In Whose Best Interest? What Americans Know and What they Want When it comes to Retirement Investment Advice,” visit FinancialEngines.com.