New retirement rule may not prevent bad advice

You don’t have to take the advice of your financial adviser.

I need to say this because, already, some investment professionals are scaring clients into thinking that the federal government is forcing them to invest a certain kind of way — all to comply with the Labor Department’s new fiduciary rule.

Under guidelines that went into effect Friday, investment professionals, when giving advice about retirement plans such as a 401(k), are required to put their clients’ interests first.

An investment adviser has a “fiduciary duty” to act in the best interests of his or her clients. Financial-planning professionals who are not “fiduciaries” — say, certain brokers or insurance agents — aren’t held to that same standard. They just need to make sure that their advice is “suitable” for their clients. What this means, in practice, is that they can have all kinds of conflicts of interest. For example, the person advising you to buy a certain mutual fund might not reveal that he is getting a huge commission to sell you the fund or that there is a similar lower-priced product available.

The law of the land now is: If you give retirement investment advice, you are a fiduciary and, as such, you have an obligation to give advice that is in the best interest of your client. This includes considering a client’s investment goals and risk tolerance.

Consumer advocates championed the rule’s implementation. For obvious reasons, many investment companies and professionals did not.

As the fiduciary rule is phased in, be cautious about the advice you’ll receive. Some confused or unscrupulous advisers may still try to steer you wrong.

I spoke with Barbara Roper, director of investor protection for the Consumer Federation of America. “The rule does not in any way limit what people can choose to do with their own money,” Roper said.

Firms not sure of what they should do need to check with the Labor Department before making these sorts of recommendations, she said. And, as long as advisers are documenting their recommendations and a client’s desire to do something contrary to their advice, they should easily withstand the “best interest” test.