Fiduciary Rule and Its Effect on Financial Professionals—Part III: What to Do as a Financial Professional

A fiduciary rule proposed by the U.S. Department of Labor (DOL) in 2010, has left the industry in flux ever since. With the goal of protecting consumers from conflicting financial advice, the rule has been in debate since 2016. It has been phased in, withdrawn, voted on, vetoed, reviewed, revised and, at present, left to individual states. This series addresses the complexities of the rule, its effect on financial professionals and the importance of fiduciary insurance coverage.

See Part I and Part II of the series to get the full background on Fiduciary Rule.

Where Fiduciary Rule Stands Today

On June 5, 2019, the SEC approved its investment advice reform package, Regulation Best Interest (Reg BI). The rules will become effective 60 days after their publication in the Federal Register and the compliance deadline for brokers will be June 30, 2020.

Some of the new Reg BI rules include:

  • Disclosure Obligation—Broker-dealers must disclose material facts about the relationship and recommendations of the products and services they provide.
  • Care Obligation—A broker-dealer must exercise reasonable diligence, care, and skill when making a recommendation to a retail customer. The broker-dealer must understand potential risks, rewards, and costs associated with the recommendation.
  • Conflict-of-Interest Obligation—The broker-dealer must establish, maintain, and enforce written policies and procedures reasonably designed to identify and—at a minimum—disclose or eliminate conflicts of interest.
  • Compliance ObligationBroker-dealers must establish, maintain, and enforce policies and procedures reasonably designed to achieve compliance with Regulation Best Interest as a whole.

It remains to be seen what impact this will have on the DOL’s involvement.

Individual states are also introducing their own rulings, including California, Nevada and New Jersey. More are expected to take the matter into their own hands, following the SEC ruling.

All this back and forth has led to consumer awareness and confusion in the industry.

What to Do as a Financial Professional

Because of the consumer awareness and confusion surrounding fiduciary rule, RIAs and investment advisors need to act.

Not only do you need to work towards meeting Reg BI compliance guidelines, you need to ensure your Errors and Omissions insurance contains fiduciary insurance coverage. Even if you practice in a state without their own rulings, you will need fiduciary insurance coverage when the SEC ruling goes into effect.

An Errors & Omissions policy from Lockton Affinity Advisor contains fiduciary insurance coverage automatically. This coverage meets ERISA standards, including services as an ERISA 3(21) and 3(38) advisor. It also ensures any fiduciary duties you perform are covered.

After years of uncertainty, it appears that regulations surrounding fiduciary work are slowly but surely being implemented. Don’t risk going without the right coverage. Contact Lockton Affinity Advisor to learn more about our E&O insurance with fiduciary coverage.


In Part IV of this Fiduciary Series, we will address how states are reacting to the SEC’s Reg BI rule and any recent developments.