May 19th, 2016


The trustee of my late father’s testamentary trust continues to use dad’s old commission based broker at a wire house firm to buy and sell securities for the trust. Several of the investments have not done well and don’t seem to be appropriate    for either  my mother as the current income beneficiary or for me as the remainderman. Can I get any redress against the broker and/or the trustee in light of the Department of Labor’s (“DOL”) recently promulgated Final Fiduciary Rules, possibly a breach of fiduciary duties and responsibilities?


Admittedly, the new Department of Labor Final Fiduciary Rules are designed to primarily apply to retirement accounts and IRAs, not personal trust accounts. However, views expressed by the SEC and FINRA at hearings concerning the 2015 preliminary regulations and the April 6, 2016 final regulations suggest that fiduciary responsibility has been redefined and is taken quite seriously by regulatory agencies concerned with “trust accounts”. Accordingly, a brief overview of the DOL Final Fiduciary Rules is in order to get ahead of industry trends that may impact fiduciary litigation and potential personal trust trustee and investment management responsibility and liability in the future.


The new DOL regulations expand the definition of who is a fiduciary when providing investment advice on retirement accounts aiming to eliminate conflicts of interest (along the lines of 12 CFR Part 9 “Fiduciary Activities Of National Banks”, and Regulation Section 9.12, “self-dealing and conflicts of interest”), and to give investors transparent information about the total costs of investments, including fees and commissions. As the Final Fiduciary Rules explain, ERISA safeguards participants in a qualified plan  by imposing trust law standards of care and undivided loyalty on plan participants and by holding fiduciaries accountable when they breach those obligations. In addition, fiduciaries to plans and IRAs are not permitted to engage in “prohibited transactions” which pose special dangers to the security of retirement, health, and other plan benefits because of fiduciaries’ conflicts of interest with respect to the transactions.

The new rule covers anyone paid directly or indirectly for providing retirement account investment advice.  This is a major shift for brokers and broker-dealer firms who will no longer be judged by a suitability standard but instead owe a higher fiduciary duty to put their clients’ best interest first. The new rules prohibit commission based fee arrangements and other forms of conflicted compensation in the brokerage industry.

A broker who wants to continue to receive otherwise prohibited compensation may utilize the new rules “best intent contract” ( Best Interest Contract Exemption – “BICE”) approach acknowledging their fiduciary duty owed to clients to provide advice in the clients’ best interest including disclosure up front of the total cost of each new investment, fees, conflicts of interest, etc. They must also adopt policies and procedures designed to mitigate conflicts of interest. The BICE now covers all asset types. These requirements are to be included in a written agreement for IRA’s or clients that are not otherwise subject to ERISA (possibly personal trusts?). Proprietary investment products may be offered under certain circumstances. Retirement Advisers are not required to recommend the lowest fee option if another product is better for the client.


Admittedly, the currently issued DOL Final Fiduciary Rules are designed primarily to apply to retirement accounts, including IRAs, however, it is probably not unrealistic to assume that a court might give some type of expanded judicial cognizance to these new fiduciary rules and requirements when reviewing future personal trust and investment management litigation, including robo-advisors, possibly including a breach of fiduciary duties and responsibilities.

Respectfully submitted

John A. Rodgers, IIII, Esq.


Leave a Reply