Here’s What People Are Saying About State Fiduciary Rules

It’s been a while since the battle between federal fiduciary rule advocates and the financial services industry started. The U.S. Department of Labor rule is designed to oblige financial advisors to act in the best interest of clients when providing advice on investments in retirement plans. But it is an open question whether the rule has a future or not. President Trump has ordered a new analysis of the rule focused on its relevance, and  The U.S. Court of Appeals for the Fifth Circuit voted to bring down the DOL rule in March (a decision that was not appealed by the DOL), while the U.S. Securities and Exchange Commission is developing their own version of the fiduciary rule to be unveiled this summer.

Given this uncertainty, some states are enacting or considering their own fiduciary rules. Lawmakers in Nevada passed a law in July 2017 that extends the DOL Fiduciary Rule to include stockbrokers and other investment representatives into the framework and applies to both retirement and non-retirement accounts. Such advisers are obligated to disclose commissions or profits they make on their client’s investments.

Connecticut has also passed fiduciary laws, while New York and New Jersey are considering their own legislation. The Maryland Senate instructed the consumer protection agency to determine whether the state should enact a fiduciary law or not. Minnesota and California have also made rumblings of a new law, though nothing has been proposed as of this writing.

In a recent Reuter’s article, James Watkins, an attorney from Georgia who is an expert in fiduciary law, was quoted as saying that federal law doesn’t supersede state laws, since the Supreme Court has concluded that state rule governs so long as it doesn’t interfere with a retirement plan governed by ERISA. “So long as states enact fiduciary laws that don’t impact a pension plan like a 401(k), they have every right to act,” he said.

There is a concern that state legislation would present problems, particularly for large organizations in training and supervising people to adhere to rules that differ from state to state. But there may be some parallels to be drawn from other state legislation: California enacted emissions laws that are more stringent than federal requirements. In response, automakers manufacture all cars to conform to this standard, rather than creating different cars for different markets.

Obviously, the fighting over fiduciary standards is a big game. While the DOL rule requirements presuppose that any advisor should act in the client’s best interest and earn reasonable compensation, the other side of the rule is focused on disclosing information about fees and conflicts to the clients. A study conducted by the Obama administration claimed that middle-class families lost billions per year because of undisclosed payments and hidden fees. Our own research has found that participants are paying high fees for funds in their retirement portfolios and may overpay by as much as $17bn in excess fees.

With RiXtrema’s 401kFiduciaryOptimizer any advisor can be sure that all data is transparent, and the fees are understood. This will help put you on the right side of any fiduciary standard.  


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  1. Pingback : Top 5 Larkspur-Rixtrema Blog Posts for July 2018

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