Proposed Regulation Could Lower Rates of Financial Fiduciary Misconduct

It may surprise many people to learn that financial and retirement advisors do not always have their clients’ best interests in mind. In fact, a recently released study shows that a startling number of these advisors have conflicts of interest in giving financial advice.[1]  For example, advisors may receive large commissions by suggesting that clients purchase high risk, low return investments. Even checking disciplinary records may not protect clients - many financial and retirement advisors are not currently held to a “fiduciary” standard. Fiduciaries must put their clients’ best interests first above their own, and failure to do so can result in serious legal liability. Currently, federal regulations require that advisors meet a specific test to be considered fiduciaries.[2] If the advisors do not meet the test, they can continue to work despite undisclosed conflicts of interest and have limited federal liability.

A proposed U.S. Labor Department regulation would change this - it aims to designate more advisors as fiduciaries, with the goal of lowering rates of conflict of interest and imprudent advice from advisors, among other concerning actions.[3] Financial advisors who would be held to the fiduciary standard under the proposed regulation include investment advisors to individual retirement accounts (IRAs) or IRA owners, as well as advisors to employee benefit plans under the Employee Retirement Income Security Act of 1974 (ERISA) or plan participants or beneficiaries.[4]

Notably, the Labor Department also proposes exemptions for certain financial advisors to continue to be compensated in ways that would otherwise be conflicts of interest.[5] However, despite its limitations, this regulation is a step in the right direction to protect clients of financial and retirement advisors.


By Julia Damron, Esq., Barnes Law

Julia Damron is an associate attorney with Barnes Law, licensed to practice law in California.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.


[1] Woolley, Suzanne, “It Just Got Even Harder to Trust Financial Advisors”, Bloomberg Business, March 1, 2016,

[2] 29 C.F.R. 2509, 2510 (2015), available at

[3] “Fact Sheet: Department of Labor Proposes Rule to Address Conflicts of Interest in Retirement Advice, Saving Middle-Class Families Billions of Dollars Every Year”, last accessed on March 15, 2016,

[4] 29 C.F.R. 2509, 2510 (2015), supra.

[5] Id.