The word fiduciary is being used a lot these days, not just by consumers but by the President of the United States and the US government. In fact, this word and its importance to investors is at the center of an intensifying battle between the US Department of Labor and the insurance industry.
The US Government’s Fight to Protect Investors
President Biden’s administration has pledged to protect retirement investors by increasing regulations on financial advice. Upon taking office, the Biden administration vowed to crack down on financial advisers who give conflicted advice that costs investors in the form of higher fees and commissions.
In April of 2024, the administration made good on this pledge. The Department of Labor announced a new rule to protect retirement savers’ interests by updating the definition of an “Investment advice fiduciary.” “This rule protects the retirement investors from improper investment recommendations and harmful conflicts of interest,” said acting Secretary Julie Su. “Clearly this protection is a win for retirement investors.”
However, the insurance industry is fighting mightily against this new rule. Within weeks of the Department of Labor’s announcement, lobbying groups representing the largest insurance companies filed suit to topple the rule entirely. Now there is a possibility that it may never take effect.
What is a Fiduciary?
The simple definition of a fiduciary is someone who puts others interests above their own. Doctors, lawyers, and other professionals have a legal (and ethical) obligation to consider the needs of their clients ahead of their own. Most people would agree that financial advisors should also act as fiduciaries when giving retirement advice. However, many advisors are not required to act as fiduciaries, and are instead held to a much lower “suitability” standard.
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