Tag: Financial advisors
Beginning April 10, 2017, the United States Department of Labour will implement what is being referred to as the “Fiduciary Rule“. The Fiduciary Rule will require American investment advisors to satisfy a higher standard of care when providing investment recommendations, putting clients’ interests above their own and providing complete disclosure with respect to fees and potential conflicts of interest.
The standard of fiduciary, premised on a role of trust and the duty to act in utmost good faith, is applied to guardians of property and the person, attorneys of property and personal care for incapable grantors, estate trustees, and other types of trustees. While commentary regarding the Fiduciary Rule recognizes that investment advisors should be (and often are) already guided by the best interests of investor clients, some who earn commission on the sale of certain products may be in a position of conflict. The Fiduciary Rule will prevent advisors from making certain recommendations if they are not in the client’s best interests. The new standard of care required of American investment advisors may to some extent fall short of that applied in respect of other traditional fiduciaries, and is subject to a number of exceptions.
Absent the implementation of the Fiduciary Rule or equivalent requirements in other jurisdictions, investment advisors are not typically treated as fiduciaries. Contracts may specifically state that advisors are not acting in a fiduciary role and that they do not absorb risk on their clients’ behalf related to investment advice that is followed. Typically, if something goes wrong and an investor wishes to pursue a claim against his or her advisor, the onus is on the investor to prove the fiduciary nature of the relationship. If the investor is able to prove that a fiduciary obligation existed (factors include the length of the relationship, the sophistication of the client, and the demonstrated reliance on the advice of the advisor), the advisor must then show that he or she has discharged the duty in good faith and with full disclosure.
Although the Fiduciary Rule is scheduled to come into effect on April 10 of this year, it is anticipated that the new Trump administration may delay the applicability of the Fiduciary Rule for the time being. Although there have been discussions with respect to raising the standard of care of investment advisors in Canada, where extensive regulations already apply, an equivalent to the U.S. Fiduciary Rule has not yet been introduced.
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