The United States Court of Appeals for the Fifth Circuit voted on March 15, 2018 to overturn the Department of Labor’s (DOL) new fiduciary rule, requiring financial professionals who handle individual retirement and 401(k) accounts to act in the best interests of their clients. The federal court’s 2 -1 decision vacates the rule nationwide (see The DOL Fiduciary Rule Explained).

The regulation, introduced during President Obama’s administration, is intended to prevent insurance agents and broker dealers from selling their clients expensive financial products for retirement that don’t serve their best interests. Instead, those handling retirement products were to be held to the fiduciary standard.

Battle of the Standards: Fiduciary vs. Suitability

Financial professionals held to the fiduciary standard are required to educate their clients, to be transparent about how they are being compensated, and to provide full and clear disclosure of the cost of their services.

Previously, many financial professionals were only held to a suitability standard, which required that products they sell be designated as “suitable” for their client’s needs. This made it legal to recommend more expensive products that pay substantial commissions to the sellers, rather than comparable, cheaper products with lower or no fees.

Proponents of the regulation argue that the financial industry should be held to the higher standard, while opponents say that the DOL overstepped its authority. Opponents also claim that the cost of implementing such a complex rule, and the challenges of compliance for small firms, could result in higher fees for investment advice. This could make retirement planning less accessible for individuals without a lot of assets.

What Financial Advisors Think

What do financial advisors think about the rule and its possible elimination?

Investopedia contacted several contributors to Advisor Insights, our network of financial advisors. While many groups representing the financial services industry have expressed  objections to the fiduciary rule, all the advisors who responded remain uniformly in favor of the fiduciary rule, opposing the federal appeals court decision.

Many contributors to Advisor Insights are Certified Financial Planners (CFP®), or have joined groups like the National Association of Personal Finance Advisors (NAPFA) or XY Planning Network (XYPN). Because of their certifications or voluntary memberships, they’ve pledged to adhere to a fiduciary standard independent of federal regulation.

“Wall Street is fighting this standard of professional behavior because selling products that are not in the client’s best interest is an extremely lucrative business," responds Paul Sydlansky CFP®, founder of Lake Road Advisors in Binghamton, N.Y. "As someone who has been in the financial services industry for almost 20 years, I’ve lost count of how many times I’ve seen consumers who were sold products that were not in their best interest because it was profitable for someone else: whole life insurance, annuities, or front-loaded mutual funds with high fees. The financial advice industry needs to do better.”

According to Alison Davies CFP®, principal of Fruition Advisors LLC in in Berkeley, Calif., “If the Department of Labor’s (DOL) Fiduciary Rule is eliminated, the financial “Goliaths” can go back to putting their own profit first….This ruling works against the individual investor’s best interests.”

Paul Ruedi, Jr. CFP®, financial advisor at Ruedi Wealth Management suggests that the elimination of the legal mandate should not change advisor’s behavior: “I don’t act in my clients' best interest because I’m required to as a Certified Financial Planner (CFP®) who works at an Registered Investment Advisor (RIA) firm; I act in my clients' best interest because my success as a financial advisor is based on my clients’ results.”

“There’s never been a clear understanding of how advisors are compensated: Individuals and families should have access to this information so they can determine what kind of firm or company they are comfortable working with,” says Herbie Kyles AWMA®, a financial planner with AspenCross Wealth Management in Westborough, Mass. Because of the increasing number of conversations about the fiduciary rule, clients of advisory firms have been prompted to discuss compensation and ultimately determine whether or not their advisor is giving them investment advice, or trying to earn a commission.”

Although the fiduciary rule is currently endangered, many suspect that the legal battle is not over and remain optimistic that the DOL will request a rehearing. Until then, the discussions that are happening as a result of the regulation have a silver lining: More people are starting conversations with their advisor about how they are compensated, and whether they act as a fiduciary. These conversations will help investors get the information they need to make the most cost-effective decisions.