Tax Advantaged Retirement Accounts: New Fiduciary Duties Imposed for Financial Advisors and Brokers

Web Admin - Monday, July 18, 2016

Illinois estate planning attorneysIn an era where individuals are increasingly being forced to handle their own retirement savings and financial future, it is important that financial advisors provide sound investment advice, and to not take advantage of hardworking individuals. In order to help protect America’s workers, the Department of Labor has imposed new rules that require advisors and brokers managing retirement accounts to put their clients’ interests first, which is a much stricter approach to retirement saving than in the past. These new rules are collectively referred to as the Conflict of Interest Rule-Investment Advice.  

You would hope that the people you trust when it comes to making investments in your retirement accounts would be honest and would represent your best interests. However, this was not always the case before the imposition of the new rule. Advisors sometime have a conflict of interest when it comes to giving financial advice, especially in situations where the advice is a one-time occurrence, such as when a baby boomer rolls over their ERISA plan investments into an individual retirement account (IRA) or 401(k).  

The new Department of Labor rules are intended to help protect IRA and 401(k) retirement account holders from brokers’ and advisors’ potential conflicts of interest. The new rules impose a fiduciary duty on advisors and brokers that handle retirement accounts so that the client’s interest takes precedence. These new rules can be confusing, if you have questions, you can contact one of the experienced lawyers at our office for help. 

The New Impartial Conduct Standard  

Prior to the new fiduciary rules, advisors and brokers were only required to make recommendations for products that were merely suitable for the client, even when the recommendation was not necessarily the client’s best option. Under the new rules, the definition of fiduciary investment advice was changed by amending 29 CFR 2510.3-21. So now if advisors or brokers make financial recommendations to clients in exchange for a fee for tax-advantaged retirement accounts, then they are obligated to comply with the new impartial conduct standard, which governs their fiduciary duty to their clients.  

There are a number of exceptions to the rule. For instance, a brokerage firm that provides educational information to its clients about a specific product or investment, would not qualify as a recommendation for the purpose of this rule. The new rule became effective as of June 7, 2016, and is applicable as of April 10, 2017.  

If you are interested in learning more about the new rules imposed by the Department of Labor, or would like assistance in understand which investments and advisor are covered by the rules please feel free to contact one of our experienced Illinois estate planning attorneys today. Our law firm serves the communities of Crystal Lake, Palatine, Inverness, Schaumburg, Long Grove, Kenilworth, Riverwoods, Des Plaines, Buffalo Grove, Barrington, and Arlington Heights. Call 847-934-6000 to speak to a member of our team.

About the Author: Attorney Jay Andrew is a founding partner of Drost, Gilbert, Andrew & Apicella, LLC. He is a graduate of the University of Dayton School of Law and has been practicing in estate planning, probate, trust administration, real estate law, residential/ commercial leasing, contracts, and civil litigation. Since 2005, Jay has been a Chair of the Mock Trial Committee for the Annual Northwest Suburban Bar Association High School Mock Trial Invitation which serves over 240 local Illinois students each year.


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