Fiduciary Ruling USA....Comparisons to UK Financial Advice

When a hard-won historic milestone is achieved, it’s usually front-page news: The 1966 World Cup victory. The fall of the Berlin Wall… April 6th’s fiduciary ruling by the U.S. Department of Labor (DOL). About that last one. If you heard the news at all, you probably found it buried in the business section or on an international newsfeed. With the ruling, anyone offering advice about U.S. personal pension assets (the equivalent of our pension funds) will be legally required to do so according to the investor’s highest interests, regardless of any conflicting incentives or dual roles they may have.

That’s the ruling in principle; its best-interest requirements are referred to as “fiduciary.” Being a fiduciary adviser is roughly equivalent to the FCA’s overarching principle of business that commits us to “Treating Customers Fairly” (TCF). Call it fiduciary. Call it TCF. Call it Fred. In essence this quietly released news is big on putting the client first. That’s a move we can applaud, no matter where it occurs or what it’s called.

In reality, just as is the case here in the U.K., the ruling leaves room for improvement. First, its scope is limited to particular assets. Also, politics as usual, it was watered down by several last-minute compromises that might (1) limit how well it can be applied, and (2) dilute the strictest definition of a good investor-adviser relationship with unnecessary exceptions to the rule. If you’re keen on studying the American financial system, This New York Times overview offers a helpful summary of the details.

In short, the DOL’s ruling won’t eliminate every bad thing that can happen to a good investor – not even close. Still, for all of its flaws, it appears to be generating improvements. In anticipation of it, several large U.S. financial firms have already begun adjusting conflicted business models, shifting toward more efficiently managed products and lowering inflated prices.

What does this have to do with U.K. investors?

Most of all, we hope the changes will inspire further improvements to our own, similarly hard-fought initiatives, summarised here:

• TCF has been in existence since financial regulation came about, but the Financial Services Authority began focusing on it in earnest around 2008 (during those particularly challenging financial times).

• Ever since, advisory firms have been required to demonstrate that they are delivering against this important principle in everything they do. This is on top of other specific rules and regulations firms must follow; regulators can challenge those not meeting their obligations.

• More recently, the U.K. initiated the Retail Distribution Review (RDR). The aim was to increase advisers’ professionalism by increasing minimum qualifications, and requiring greater transparency on earning disclosures.

• Financial services could be due for another shake up, following the Financial Advice Market Review conducted by HM Treasury and the FCA. In the coming year, they intend to use the review to look at how investors receive advice and make investment decisions. Combine this review with our European Economic Area influences and the looming potential for a Brexit … and who knows what may unfold – or not – with respect to improved investor advocacy.

Come what may, as a proud, financial planning firm, we remain dedicated to advising you on how to best manage your wealth – all of your wealth – according to your goals and challenges. From a practical perspective, this means that TCF and RDR had a limited effect on us; we were already well-qualified, well-capitalised and well-positioned to demonstrate that we treat our clients fairly. With or without any regulatory requirements, this is what we do; it’s who we are. It’s bred in our bone.

We welcome any questions you may have about your own best interests as an investor. In the meantime, if you ever notice other firms mimicking us as a result of any new requirements that may unfold from here, you might want to ask them: What took you so long?