The U.S. Department of Labor is considering new rules to protect retiree-investors by cracking down on arrant investment brokers. The rules would help ensure that retired investors, many of whom rely on their retirement investment accounts to provide for them in old age, are not taken advantage of by brokers harboring undisclosed conflicts of interest. Under the proposed rules, the brokers would be required by law to do what commonsense and basic scruples should dictate anyway: act in the best interest of the retirees who give them their money to invest.
The phrase “fiduciary duty” appears in various areas of the law where one acts at the behest of another. It is founded on concepts of trust, responsibility, and often vulnerability. Most basically, the phrase means that the person to whom power or property is entrusted – the “fiduciary” – must place the interests of the person from whom it is received above even his or her own.
In the context of investing, it means that the broker or advisor to whom the investor turns for guidance must act solely in the best interests of the investor. The reason for this principle is that the broker or advisor is in a position of power, as he or she usually possesses vastly greater knowledge and sophistication as to today’s complex financial markets.
Currently, however, only registered investment advisers are deemed to owe this duty to their investors. Yet oftentimes retirees rolling over retirement savings accounts like the 401(k) from their employers into individual accounts end up working with brokers who do not fall into that category. Instead, the brokers may recommend investments that, unbeknownst to the investors, the brokers are earning a hefty commission off of and prioritizing their own compensation over the propriety of the investments they are recommending. As a result, many retirees whose continued financial health depends on the proper investment of savings they have worked their whole lives to build are pouring money into funds and vehicles not suited to their investment needs, thereby exposing themselves to potential ruin.
To tackle this problem, the Labor Department has proposed new rules to update the Employee Retirement Income Security Act, or Erisa, to apply the fiduciary duty standard more broadly. Any professional being compensated for providing investment advice would be subject to the higher standard under the proposed changes, helping to ensure that retirees receive good investing advice and that conflicts of interests are fully disclosed. (You can read more about the proposed rule changes here)
The lawyers at Abraham, Watkins, Nichols, Agosto, Aziz & Stogner have been fighting to protect everyday Texans of all stripes for over 65 years in cases involving catastrophic injury, commercial malfeasance, and investor fraud. If you or someone you know has been hurt by the wrongdoing of another, contact us at (713) 222-7211 or toll free at 713-222-7211.