The United States Department of Labor has enacted new regulations which will impose a fiduciary duty upon brokers and other financial advisers making recommendations to investors concerning their retirement accounts, such as IRA’s and 401(k) accounts. This means that recommendations made by brokers or financial advisers will not only have to be “suitable” for the investor, as currently required, but will have to be in the “best interest” of the client as well. In other words, a broker or adviser could face liability for making a recommendation concerning one suitable investment over another if the particular recommendation was made just because the broker or adviser would earn a greater commission or other compensation.
The new fiduciary rule is effective June 9th. It had been scheduled to go into effect April 10th, but was delayed 60 days for review by the Trump Administration. Some parts of the new rule will not go into effect until January 1st, 2018 including a requirement that the standards of the fiduciary rule be incorporated into customer contracts. Most brokerage and investment firms are already geared up for the fiduciary rule, but more claims by investors against such firms are expected due to the more stringent standard of conduct imposed upon brokers and financial advisers by the fiduciary duty.
Thomas McNamara is a partner in the commercial litigation group of Certilman Balin Adler & Hyman, LLP, East Meadow, N.Y.