The Two Big Fiduciary Rule Risks You Don’t Know

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The Two Big Fiduciary Rule Risks You Don't Know


There has been a wealth of reports on the fiduciary rule and the potential issues it will likely cause, including a significant reduction in wealth management coverage for American households and a jump in expenses for clients. However, there are two new arguments to consider. An article in the Houston Chronicle points out, firstly, that judgments about whether investment advice was suitable are likely to be jaded by future results. Given hindsight, it is very easy to make any recommendation that lost money look bad (e.g. look at recommendations to buy tech stocks before the Dotcom crash). This could lead to legal bias against advisers in future judgments. This second point is that it is uncertain how the size of a client's portfolio will affect a fiduciary judgment. For instance, if a client only has $100,00 to invest, putting it all in risky venture capital investments would be misguided. But if another client has $10m to invest, then that same $100,000 VC investment (representing just 1% of a portfolio), should be judged differently, yet it is unclear if it will be.

FINSUM:We think these are some worthwhile perspectives that have not been written in mainstream media. Advisors themselves may have thought of these issues, but these risks are certainly worth serious consideration.

Source: FINSUM

  • advisors
  • DoL
  • lawsuit
  • fiduciary rule

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Wealth Management

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