Do Your Clients Understand What “Best Interest” Means?

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In failing to hold all those who provide financial advice to a comprehensive fiduciary standard, the SEC enacted Reg BI to enforce a “best interest” standard. Do your clients understand what that means and its implications?

Though the pandemic initially distracted many and the unkind markets of 2022 grabbed the attention of everyone else, there are still discontented rumblings about the ramifications of the demise of the fiduciary standard for advisors working with retirement accounts. That demise was put forward by the Department of Labor and subsequently struck down by the Fifth Circuit in 2018. Perhaps as a gesture toward replacement, the SEC gave us Reg BI, which is theoretically aimed at affording investors better protections, more transparency, and a “best interest” standard for broker-dealer recommendations.

Depending on whom you ask, Reg BI is either a qualified step in the right direction or a confusing double standard. Though it requires broker-dealers to provide recommendations “in the best interest” of investors at the time of the recommendation, many observers point out that this is not the same as a fiduciary standard of care that extends for the life of the client-advisor relationship, which likely runs well beyond the time of the recommendation. In its comparison of the CFP Board’s Code and Standards with Reg BI, the Board noted numerous instances where the Code and Standards establish a higher bar in client care than the SEC’s Reg BI.

But most of us already know this, right? The more important question – and far more crucial to the well-being of our practices – is how well our clients understand the implications of the fiduciary standard (or its absence) for their financial planning and investment management. It’s easy to get distracted by the day-to-day busyness of answering calls, meeting with clients, replying to emails, and keeping up with the markets, to the point that we forget the importance of highlighting for our clients our central value proposition: the fiduciary care with which we conduct our relationships. If we aren’t focusing our clients’ attention on that, in both overt and subtle ways, we’re neglecting one of the most important cards in our hand and, at the same time, undercutting our perceived value to those we are trying to serve.