If you don’t think working with a fiduciary advisor is important, imagine going to a doctor for the first time and being told the doctor does not adhere to the Hippocratic oath. The doctor patiently explains that though he is a doctor, the professional organization to which he belongs has a different standard. This alternate standard lacks the clarity of the Hippocratic oath as the paragraphs of disclosure printed in 8 point type make apparent. And just in case you think the doctor does actually harm you, tucked away towards the end of the agreement you signed is a paragraph that says in the event of a legal dispute, your sole remedy is arbitration run by the doctor’s professional organization.

That’s the situation in which many investors in the U.S. now find themselves. The industry is broadly spilt into two different groups – Registered Investment Advisors (or RIAs) and Broker Dealers (or BDs). RIAs have to act as fiduciaries, and broadly, being a fiduciary advisor means that you must act in your clients’ best interest at all times. Broker Dealers, on the other hand, are subject to a suitability standard, which says that an investment must be suitable. What that means is less clear and stringent than the fiduciary standard. To make matters even more confusing, there is no standard regarding who can call him or herself a financial advisor even though broker dealers avoid being classified as fiduciaries because they claim they aren’t offering advice. Finally, there are those who question whether the last line of defense for clients of broker dealers – mandatory arbitration – treats clients fairly.

To address these issues, in the aftermath of the financial-crisis there was a strong push for a uniform fiduciary standard across the entire securities industry. The CFP Board and the CFA institute were strong advocates, as was NAPFA, and that’s one reason I’m proud to be a member of those organizations. Opposing the uniform standard were what you’d think of, generally, as Wall Street firms. They made a number of claims about how adhering to the standard would preclude them from offering advice to small investors, and the most memorable one was it would simply be cost prohibitive to offer advice to small investors. Returning to the medical metaphor, imagine a physicians professional organization claiming it would just cost them too much to promise that they would start by doing no harm.

Wall Street realized that even a more friendly administration would have trouble nixing a uniform Fiduciary Standard and replacing it with nothing, so they green lighted Regulation Best Interest. Regulation Best Interest, referred to as Regulation BI, won’t have much impact on RIAs who already operate as fiduciaries, but it should be somewhat of an improvement for investors working with Broker Dealers. Here is what industry expert Michael Kitces had to say:

Ultimately, while Regulation Best Interest did not impose a full fiduciary duty on broker-dealers, it does materially lift the standard of conduct that applies to them, requiring greater disclosures from broker-dealers of their business practices, a requirement for broker-dealers to take active steps to mitigate the conflicts of interest their incentives create for brokers, and an outright ban on certain sales contests, quotas, and similar (and especially problematic) incentives.

Those advocating for a uniform fiduciary standard were, on the other hand, very disappointed in the Regulation BI. It would, they contended, allow Broker-Dealers to sell costly, commission-laden investment products that weren’t in investors’ best interest so long as they disclosed they were doing that. They also felt the regulation intentionally blurred the line between one who acts as a fiduciary advisor and those who did not.

Time will tell to what extent the new rule benefits investors. It will not have a great deal of impact on those financial advisors who already act as fiduciaries, which is still a relatively large group, and as of October 2019, a group that will include all CFPs.