"The ERISA fiduciary definition goes back to 1974, when there were no 401(k) plans and IRAs were still small," said Kevin Keller, CEO of the Certified Financial Planner Board of Standards. "The world has changed dramatically since then. It's time to update the rules."
Currently, registered investment advisors regulated by the Securities and Exchange Commission or state securities regulators are already held to a fiduciary standard of conduct under which they must act in their clients' best interests. That means putting the client's needs before their own, and if they don't, they can be sued by investors.
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Securities brokers, however, are regulated by the Financial Industry Regulatory Authority under a "suitability" standard. The investments they recommend must be suitable for investors, but they are not required by law to act in their clients' best interests. Any disputes between brokers and their clients are settled through an arbitration process.
"The new rule represents long-overdue consumer protection," said Geoffrey Brown, CEO of the National Association of Personal Financial Advisors, which also supports the DOL proposal.
"It's time for this," he said.