Magazine article The CPA Journal

What's Wrong with Putting the Clients First?

Magazine article The CPA Journal

What's Wrong with Putting the Clients First?

Article excerpt

As CPAs, our raison d'être is to protect the public, to help instill trust and confidence in our corporate and public institutions. We are the gold-standard trusted advisor for our clients; we should act ethically, honestly, independently, and responsibly.

This "golden rule" is not followed by everyone who advises the public cm financial matters. Some financial planners put their own self-interest before their clients' needs. In many cases, clients have no understandmg of the roles that financial advisors use and the compensation models they employ. The distinctions between "doing financial planning" and "working in the financial planning industry" are not clear to the public, as CPA Journal PEP columnist Edward Mendlowitz has pointed out to me.

The Department of Labor (DOL) has therefore proposed regulations that will put the interests of clients above the interests of advisors (Fiduciary, Conflict of Interest Rule, Retirement Investment Advice-Proposed Rule, Federal Register, vol. 80, no. 75, Monday, Apr. 20, 2015).

The Proposal

The fiduciary rule would define who is a fiduciary of an employee benefit plan under the Employment Retirement Income Security Act of 1974 (ERISA). Its mission is "to ensure the adviser is acting in the best interest of the advice recipient" (p. 7).

America stands on the cusp of the greatest wealth transfer in its history, principally from employers' defined contribution plans to myriad self-directed retirement plans. The proposed regulation "would treat persons who provide investment advice or recommendations to an... IRA, or IRA owner as fiduciaries ... imposing trust law standards of care and standards of undivided loyalty" (pp. 1,3). Furthermore, "the proposed rule and related exemptions would increase consumer protection for plan sponsors, fiduciaries, participants, beneficiaries and ERA owners" In other words, if you advise clients on how to spend their life's savings, you will now need to act in their best interest, not yours.

Opposition to the Proposal

The new rules were first proposed-and blocked-in 2010; now the battle has begun again. The American Society of Pension Professionals and Actuaries (ASPPA) recently reported that several financial sendees executives predicted "dire consequences if enacted" (Nevin Adams, "Warren Calls Out Financial Services Firms on Fiduciary Rule Changes," Feb. 12,2016, http://bitly/lKHOS5J), and Financial Planning Magazine reported that "some lawmakers have proposed a blunter instrument to block the DOL's proposal in the form of a rider that would simply bar the department from using its congressional appropriation to advance the rule" (Kenneth Corbin, "Washington Lobbyists Intensify Efforts to Derail DOL Fiduciary Rule," Dec. …

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