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DOL Fiduciary News: February 20, 2018

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Fiduciary Rule Myths - Advisors must recommend the best available investment

Lexology; Drinker Biddle & Reath LLP, Feb 19, 2018

MYTH: “Advisors must recommend the best available investment.”

We recently pointed out that under the DOL fiduciary rule, it’s a myth that advisors have to recommend the lowest cost investment. They don’t.

Here’s another myth about investment recommendations that isn’t true: advisors have to recommend the best investment to their customers. Presumably, this comes up because of the Impartial Conduct Standards in the Best Interest Contract Exemption (BICE). One of the requirements in those Standards is that a recommendation be in the best interest of the customer. This best interest requirement may lead some to think that advisors have to meet an essentially impossible standard. As with a lowest-cost recommendation, however, a mandate to recommend the best investment is a myth…it just isn’t true. Even the DOL has said so:

“…the Department also confirms that the Best Interest standard does not impose an unattainable obligation on Advisers and Financial Institutions to somehow identify the single ‘best’ investment for the Retirement Investor out of all the investments in the national or international marketplace, assuming such advice were even possible.” (Preamble to the BIC Exemption, 81 Fed. Reg. 21002, at page 21029)

(The DOL references “Advisers and Financial Institutions” here because both the individual advisor who deals with the customer and the broker-dealer are fiduciaries for purposes of an investment recommendation.)

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