What Is the Rule? Understanding the Fiduciary Standard in Financial Advice

Despite growing media attention, many people still don’t fully understand what a uniform fiduciary standard is—or how it impacts their financial well-being. In today’s marketplace, many financial professionals operate under a suitability standard rather than a fiduciary one. That means the investment recommendations they make only need to be suitable, not necessarily in the client’s best interest. This standard allows advisors to recommend products that pay them higher commissions, even when better, lower-cost alternatives exist.

The Department of Labor (DOL) has spent nearly six years pushing for a fiduciary standard, especially for those providing retirement advice. Why? Because too often, the public assumes their financial advisor is putting their interests first, when in reality, many advisors are simply well-paid salespeople. The DOL’s goal was to legally obligate financial professionals to act in their clients’ best interest—a move that would significantly reduce commissions and product fees but ultimately protect investors from biased advice.

What We Hoped the Rule Would Do

When the DOL first proposed the fiduciary rule, it addressed many of the issues plaguing modern investors. At Gainplan, we supported a true fiduciary model—one that included a Best Interest Contract (BIC) signed before any advice or transactions, with clear and transparent cost disclosures and no exemptions. This would have:

• Prevented advisors from recommending high-fee proprietary products unless they were objectively the best option.

• Eliminated incentives like commissions or rewards that lead to biased advice.

• Prohibited the sale of inappropriate investment vehicles (e.g., expensive variable annuities in retirement accounts).

• Required advisors to offer multiple product options and ongoing monitoring of client portfolios.

The intention was simple: create accountability and align the advisor’s goals with the client’s long-term success.

What the Final Rule Actually Delivered

Unfortunately, the final DOL rule—over 1,000 pages long—fell far short of that vision. It was watered down in response to industry pressure and left too many loopholes in place. While the Best Interest Contract was included, it came with major exemptions:

• Commissions are still allowed, as long as conflicts of interest are disclosed.

• Proprietary and high-commission products remain permissible, with only minimal transparency required.

• Fee disclosures can be made via a website link, rather than clearly outlined for the client.

• Contracts only need to be signed after the account is opened, which allows firms to sell before they’re fully accountable.

Additionally, exemptions such as principal transactions and the low-fee exemption allow firms to sell their own inventory or products based on vague “reasonable basis” criteria—without providing side-by-side comparisons.

On a positive note, the rule does require that advisors provide options when discussing insurance products and imposes personal liability on advisors who cause harm to clients. Full compliance is required by January 1, 2018—but in its current form, the rule doesn’t do enough.

Final Thoughts: A Step Forward or Just More Confusion?

At the heart of this debate are two competing philosophies: one where conflicted advice is acceptable if disclosed, and one where conflicts of interest should be eliminated altogether. At Gainplan, we believe the latter is the only path to truly serving clients. A fiduciary standard should mean:

• No hidden fees

• No proprietary product pushing

• No incentives that undermine objectivity

The industry’s argument—that clients can’t afford real fiduciary relationships—is deeply flawed. That mindset puts firm profits above client outcomes and continues to harm everyday investors.

The DOL rule had the potential to reshape financial advice for the better. But as it stands, it maintains the status quo and provides little clarity for investors trying to distinguish between trustworthy advice and sales-driven recommendations.

Resources:

• http://www.dol.gov/ebsa/regs/cmt-1210-AB32.html
• http://www.investmentnews.com/assets/docs/CI99098414.PDF
• http://www.dol.gov/ebsa/regs/conflictsofinterest.html
• http://www.investmentnews.com/article/20160411/FREE/160419985/financial-planners-foresee-little-disruption-to-practices-from-dol

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