Fiduciary responsibility has always been serious. Now, it is being enforced.

On February 23, 2015, President Barack Obama issued the following statement: “Today, I’m calling on the Department of Labor to update the rules and requirements that retirement advisors put the best interests of their clients above their own financial interests. It’s a very simple principle: You want to give financial advice, you’ve got to put your client’s interests first.” Now that the date of June 7, 2016, has come and gone, we must follow this directive, lest we wind up in the same situation as LaMettry’s Collision. That business is embroiled in the class-action suit Damberg et al. v. LaMettry’s Collision Inc. et al. The suit alleges that the company charged excessive fees for administering its retirement plan. Similarly, investors also filed suit against M&T Bank Corp, whose retirement plan was more than 200 times larger than LaMettry’s. As you can see, this is serious business.

Employee Retirement Income Security Act of 1974

This act gave the Department of Labor the authority to safeguard American citizens’ retirement savings plans and also provided for significant tax incentives if they saved for retirement. Unscrupulous financial advisers, however, sought and exploited loopholes in the Act whereby they recommended investments based on the fees they could collect rather than the health of the investors’ money. In 2015, these loophole seekers put $17 billion into their collective pockets while bilking American investors out of 1 percent of their returns on investment. When you figure in the compounding of interest and reinvestment possibilities, that winds up being a gigantic hit 20 or 30 years down the road.

What’s Changing?

At the most basic level, the new law limits the amount of “fine print” and doesn’t allow investment advisers to trick investors or otherwise mislead them. As stated, advisers must look out for their clients’ interests first. At the core of this change is the expansion of who and what is and is not considered a fiduciary. The new interpretation is much broader than the old. The text of the proposed change that was enacted a week ago read:

This rulemaking would reduce harmful conflicts of interest by amending the regulatory definition of the term “fiduciary” set forth at 29 CFR 2510.3-21(c) to more broadly define as fiduciaries those persons who render investment advice to plans and IRAs for a fee within the meaning of section 3(21) of the Employee Retirement Income Security Act (ERISA) and section 4975(e)(3) of the Internal Revenue Code.

The Department of Labor, which is sticking with the authority granted it by the Employee Retirement Income Security Act of 1974, is remaining vigilant against such fee predation. It reserves the right to bring federal enforcement proceedings against violators of the law.

What Does This Mean for Financial Investment Advisers?

It means we have to make our living by earning your respect, trust, and business and not bilking you out of it, which is just as it should be.