The Department did not accept certain other comments, however. One commenter requested that the Department add a qualifier providing that the standard is violated only if the statement was “reasonably relied” on by the retirement investor. The Department rejected the comment. The Department’s aim is to ensure that financial institutions and advisors uniformly adhere to the Impartial Conduct Standards, including the obligation to avoid materially misleading statements, when they give advice. Whether a retirement investor relied on a particular statement may be relevant to the question of damages in subsequent arbitration or court proceedings, but it is not and should not be relevant to the question of whether the advice fiduciary violated the exemption’s standards in the first place. Moreover, inclusion of a “reasonable reliance” standard runs the risk of inviting boilerplate disclaimers of reliance in contracts and disclosure documents precisely so the advisor can assert that any reliance is unreasonable.
One commenter asked the Department to require only that the advisor “reasonably believe” the statements are not misleading. The Department is concerned that this standard too could undermine the protections of this condition, by requiring retirement investors or the Department to prove the advisor’s actual belief rather than focusing on whether the statement is objectively misleading.
In conclusion, I do not believe that “the financial services industry is best served by attempting to develop rules to ‘define’ the Department of Labor’s ‘best interest’ standard”.
Harold Evensky, CFP, is the chairman of Evensky & Katz/Foldes Financial Wealth Management and a professor of practice in the Department of Personal Financial Planning at Texas Tech University.