Oversight of Financial Planners: Proposed Rules Delayed

By Ronald A. Fatoullah, Esq. and Debby Rosenfeld, Esq.

{3:08 minutes to read} Many individuals with assets rely heavily on financial advisors to provide advice or guidance regarding their portfolios. Financial advisers can provide many different services, such as investment management, income tax preparation, and estate planning. The expectation is always that a financial advisor has his/her client's best interest in mind, but unfortunately, that is not always the case.

Sometimes, financial advisors will earn higher commissions if they recommend certain retirement investments with high fees and low returns to their clients. This could be a terrible trap for the unwary. A client who is not savvy may be encouraged to invest in a product that is ultimately not in his/her best interest. To address these concerns, in April of 2016, the Department of Labor drafted rules that would require financial advisors to act as fiduciaries. Fiduciaries are required to avoid conflicts of interest and to act with transparency.

The proposed rules required all financial professionals who offer advice related to retirement savings to act in the best interest of their respective clients. Under the current rules, financial advisors are merely required to offer retirement investments that are suitable to a client's needs. According to these standards, a financial advisor can endorse a product that provides greater benefit to himself/herself than to the client. The proposed rules provide that a financial advisor cannot receive compensation for selling a particular product that would create a conflict of interest, unless the advisor has a signed contract in which he/she legally agrees to put the client's best interests first. The financial advisor would be mandated to disclose any fees and any potential conflict of interest.

While these rules were proposed last year, President Trump recently signed an executive order delaying their implementation and calling for a complete review. Many financial companies, in anticipation of these rules going into effect, have already spent time and exerted effort in an attempt to comply with the rules. Now, there is the possibility that the rules will be repealed.

Even if the rules are not put into place, the concerns described above should serve as a reminder to anyone seeking the services of a financial advisor to proceed with caution. Each client should ask a financial advisor if he/she is a fiduciary. Ultimately, we all want our professionals to have our best interests at heart.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Debby Rosenfeld, Esq. is a senior staff attorney at the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also a partner with Advice Period, a wealth management firm, and he can be reached at 424-256-7273.