Prof: Transparency Is Focus Of Fed Finance Law
A new rule from the U-S Department of Labor changes the responsibilities of certain financial advisors. Some people including US Senator Mike Rounds say the law puts a greater burden on Americans and limits available advice. Others say everyday investors likely won’t see much of a difference.
Fiduciaries are people charged with putting someone else’s interests ahead of their own. That means financial fiduciaries must recommend money moves in clients’ best interests.
Loren Koepsell teaches finance at Augustana University in Sioux Falls. He says the latest fiduciary regulation includes more professions.
"A stock broker, for example, was not a fiduciary; they were a salesperson. Generally that group did not have the same fiduciary responsibilities as say your banker or your accountant might," Koepsell says. "Now it was never clear in some of these areas, and part of the reasons for the new law is to make it clear the role of all financial advisors. They basically all now have the fiduciary responsibility."
Koepsell says financial advisors now must reveal how they’re paid, including whether selling certain products earns them more cash.
"If a stockbroker works for a specific company, he may prefer to sell you his company’s products rather than a third party’s products, and, if he sells his company’s products, he may get a higher compensation from his company than he would from a third party company. So now when he is comparing two different options for you, he needs to also disclose that one option makes more money for him than the other," Koepsell says.
He says that extra step is already common among professionals, so regular investors probably won’t notice a change.
"Most of our financial advisors tried to be transparent, let us know how they’re being paid, try to act in our best interest, but this protects us from those that didn’t necessarily look at their role in that regard," Koepsell says. "But I think it’s protecting us from the minority. I think most already, even though not legally required to do so, acted in that manner."
Koepsell says the new federal rule is rooted in transparency, so people have all the information they deserve to make the most educated decisions about their money.