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DOL Fiduciary Rule
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The 3 Rs of Fiduciary Practices

Three important reasons why investors should be working with a fiduciary.

By Russ Hill

The ever-changing status of the Department of Labor’s fiduciary rule continues to garner mountains of press coverage—and with the President’s executive order to review and potentially quash the rule, there is more uncertainty than ever about how a repeal would affect the industry. Prior to the new administration, one complaint from critics of the rule was that Americans investing for their retirement didn’t need an enforced “babysitter.”

Those of us who embrace our role as fiduciaries applauded this ruling, and appreciate the light it’s casting on industry practices. What could possibly be unwelcome about requiring greater transparency concerning how investment transactions are priced? Or, requiring that professionals who invest on behalf of clients’ retirement security act in the best interests of those clients? That is why no matter what steps are recommended by the Department of Labor, we will continue acting as fiduciaries to our clients, as we have since 1989.

Thanks to this rule and the accompanying kerfuffle, American consumers are getting a great education on the diverse ways through which investment advice is delivered and priced in the United States. 

Whether this ruling is eliminated or partially survives, investors always have a choice. Investment fiduciaries’ incentives are aligned with their clients, which is not the case with the standard broker/dealer model. For me, the most powerful advantages of working with a fiduciary are what I call the 3 R’s of investment fiduciary behavior: Requirements, Responsibility, and Results.


At the heart of the current controversy lie the stringent but absolutely fundamental requirements of fiduciaries. Advisors working in a fiduciary relationship must place their clients’ interests above their own. They must do their best to ensure that their advice is based on accurate and complete information. They must both disclose and avoid conflicts of interest. As well, they are required to pursue a “best execution” standard—achieving the best combination of low cost and efficient execution in trading securities.

In contrast, a broker or “financial counselor,” is governed by a different set of standards, most prominently that of “suitability.” The suitability standard simply stipulates that b/d's must reasonably believe that any recommendations made are suitable in terms of clients’ financial needs, objectives and circumstances. Under the suitability standard, professionals buying or selling investments are not required to place clients’ interests first. Remarkably, they are not prohibited from buying investments that would garner them a higher fee or commission. 

This can and not infrequently does incentivize brokers to sell their own products ahead of lower-cost competing products. “Suitability” also doesn’t prohibit brokers from selling classes of mutual fund shares that are saddled with high commissions and annual expenses to clients—despite the fact that identical, less fee-burdened classes of the same fund are readily available through other investment platforms.


To my mind, an equally vital aspect of the fiduciary argument is the moral case it makes, which harks back to this role’s origins as a trusted guardian of families and legacies. Acting as a fiduciary is “a duty of loyalty and care.” Acting in a fiduciary capacity isn’t just a matter of checking investment boxes and moving on to the next paying client. It’s a true responsibility.   

Fiduciaries can’t hide behind legal lists of permissible investment securities. We’re tasked with having expert knowledge of the elements of portfolio construction, and how specific assets align with a client’s overall goals and financial plan. In the case of clients’ retirement accounts, allocating investments properly gives future retirees the best chance of seeing that their financial goals are realized. Now that people are living longer, keeping a steady eye on risk management practices—including diversifying assets—has never mattered more.

A true fiduciary is responsible for making the right trade-offs between risk and return, and analyzing the risks taken on by a portfolio as a whole, not just that of a proposed investment. In essence, the fiduciary is responsible for the processes he or she implements and oversees, which in turn has a decided impact on a given portfolio’s results. 


The White House Council of Economic Advisers has stated that advice on retirement accounts from non-fiduciaries costs American families $17 billion a year due to the conflicts of interest posed. This results, on average, in 1 percent lower annual returns on families’ retirement savings.

Working with a fiduciary won’t necessarily promise an individual better investment results. But, I would argue that the discipline, objective analysis, and lack of self-interest required of an investment fiduciary should lead to investment portfolios that will have a good chance of outperforming those brokered by conflicted advice and inflated fees. While an investment fiduciary is properly and legally evaluated on process, the experienced results from correctly following a fiduciary process are likely to be quite good.

Incentives Matter

Almost two decades ago, our firm chose to follow an independent advisor model to work with our clients in a fiduciary capacity. At the time, this was something of a radical move—away from the practices and fee structures of traditional brokerage firms. Today, in many cases, when we roll over clients’ outside retirement plans to our fiduciary model, extra paperwork and compliance issues may be required to demonstrate that investment allocations are appropriate and we’re implementing a strategy in their best interests. But, the strenuous documentation and due diligence are worth it.

As a fiduciary, we place our clients at the very center of our practice. We do this because it’s a good fit with our worldview—both in terms of investment management and ethical responsibility. As a fee-only fiduciary and advisor, our success is based wholly on our clients’ success: financial incentives are aligned.

It’s a model that has an almost elegant inner logic and integrity. Although it looks like the fiduciary ruling will be rolled back, I hope its ideologies and tenets become more widely embraced by all financial firms. 

Russ Hill is Chairman/CEO of Halbert Hargrove Global Advisors LLC 

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