The World of Investment Advice After June 8th 2017

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The biggest threat to your practice and lifestyle is the cost of defending against a lawsuit brought on the basis of failure to meet fiduciary standards.

RiskPro® not only helps you address the fiduciary standards required by regulation, but can help avoid costly lawsuits by providing documentation of client acceptance of portfolio recommendations.

The World of Investment Advice After June 8th 2017

1) Following 7 years in development, on June 9, 2017 the Department of Labor Fiduciary Rule takes effect.

This means the conduct standards outlined in the DOL Rule will be the required activities in relation to effected accounts stipulated by The Rule.

2) There is a “transition period” from 6/9/17 to 1/1/18 where regulators will supervise but not necessarily enforce non-compliance actions against “fiduciaries who are working diligently and in good faith to comply with the fiduciary rule and exemptions”.

Think of it like driving 68 in a 65 zone as opposed to someone driving 100 in a 65 speed zone. The DOL has made it clear from the beginning that there would be a transition period where non-enforcement would be taken into account for those making best efforts to comply. In fact, the 60 day delay of the rule simply used up 2 months of the originally slated transition period. If the regulators find a situation where the rule is being blatantly flaunted, then enforcement is still under their purview and abilities.

3) The fiduciary rule requires any advice given for ERISA or IRA accounts be in the investors “best interest” rather than the less stringent “suitability” standard previously allowed.

The focus of the fiduciary rule in its development has sought to draw attention to the difference in the fiduciary best interest standard which requires prudence and loyalty in advisor recommendations. An advisor should take into account the needs and circumstances of the retirement investor, such as age and risk tolerance, and should develop a portfolio that is prudent based on that analysis. The loyalty element of the standard requires the investor’s interests are put ahead of the advisor’s in terms of compensation and any conflict of interest.

4) Impartial Conduct Standards (ICS) will be required during the transition period. The fiduciary standards of prudence and loyalty are inherent in any ICS and RiskPro® helps to address those requirements.

By requiring Impartial Conduct Standards during the transition period, the regulators are indicating that they recognize the possible change in procedures for some advisors to adhere to the new standards of the fiduciary rule. An ICS process paves the way to meeting the fiduciary standard by focusing on prudence and loyalty in providing advice in a client relationship.

So how does RiskPro® provide compliance with the elements for the fiduciary requirements of prudence and loyalty?

  1. RiskPro® analyzes and constructs portfolios based on client risk capacity and tolerance.
  2. RiskPro® diversifies portfolios in order to manage the risk of large losses.
  3. RiskPro® uses and expands upon generally accepted investment theories and principles.
  4. RiskPro® avoids conflicts of interest from proprietary offerings.
  5. RiskPro® provides for reasonable costs and compensation.

Recent Department of Labor citations have focused on the lack of investor understanding of risk and inappropriate asset allocation.

For nearly a decade, FINRA litigations have cited fiduciary failure as a litigation point and in spite of fiduciary conduct not falling under FINRA regulation, the courts have based their judgements against advisors on failure to adhere to prudence in a fiduciary conduct standard.

DOL Secretary Acosta is calling on the SEC to re-engage in the fiduciary rule question making it likely that the fiduciary standard will be extended to all investor accounts, not simply ERISA and IRA holdings.

Protect yourself, protect your practice and protect your clients; start using RiskPro® as part of your standard of fiduciary conduct and process today!

For more information email: or call 866-612-5808.

Sources: U.S. Department of Labor, Dalbar Registered Fiduciary Studies, fi360, Washington Post, National Association of Plan Advisors

This white paper was prepared by The Pacific Financial Group, Inc. Information contained in this article has been obtained from sources believed to be reliable, but is not guaranteed. Commentary in this article contains the current opinion of the author(s) as of the date above, which are subject to change without notice. No part of this article may be reproduced in any form, or referred to in any other publication, without the express written consent of The Pacific Financial Group, Inc.

RiskPro® is built by ProToolsTM LLC. ProTools LLC is not an investment advisor and does not provide investment advice. The Pacific Financial Group, LLC, the distributor of RiskPro®, is an investment advisor registered with the Securities and Exchange Commission. The Pacific Financial Group, Inc. has recently formed a relationship with RiskPro® (developed by ProTools, LLC, and distributed by Pacific Financial Group, LLC (formally called The Elements Financial Group, LLC) to better support clients and to assist TPFG’s Portfolio Managers in making better risk-based decision. RiskPro® is an online reporting tool that assists in determining the client’s “Risk Profile”.