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CEO REPORT: First Quarter

                                                   New DOL “Conflict of Interest Rule” - The End of Alphabet Soup?

                                                   On April 6, 2016 the Department of Labor issued final rulemaking for the “Conflict of

                                                   Interest Rule – Retirement Investment Advice”. In past columns, I have been a

                                                   strong advocate of this rulemaking, although there has been strong opposition

within our industry. The annual compliance cost for the financial services industry is estimated to be $2.4 billion according to Investment News (January 11, 2016). In my view, this means that the industry may have been significantly overcharging investors. The industry lobbyists have worked extremely hard and continue to do so to soften or rollback the protections provided to investors in this final rule. What does this mean for you?


At Petersen Hastings, we believe that our clients deserve to work with an investment advisor that avoids conflicts of interest. Therefore, our clients can rest assured that not only is Petersen Hastings avoiding the types of conflicts of interest that made this rulemaking necessary; we raise the “fiduciary” bar much higher. How do we do this? All advisors of Petersen Hastings have been awarded the AIF designation (Accredited Investment Fiduciary). We undergo a fiduciary audit each year by the Centre for Fiduciary Excellence (CEFEX) to verify that we are “walking the talk”. We do not accept or pay referral fees to any individual or company. We do not accept commissions or payments of any kind from investment companies in order to earn a spot on our approved investment list. It is a combination of these types of fees that this rulemaking is targeted at, and it is those who are vigorously fighting to repeal the new rules.


Please note that this new Department of Labor rule will only apply to investors in ERISA protected retirement plans like 401(k)’s and Individual Retirement Accounts (IRA’s). Non-retirement accounts still fall under the jurisdiction of the Security and Exchange Committee (SEC).  Investment firms that currently fall under the “suitability” standard will be most affected by the new rules. Under the “suitability” standard, it is perfectly legal for an investment representative to sell you a higher commission product even though there was a lower cost version of the same product. Many investors know some of these investments as Class A, B, or C mutual funds (I call this alphabet soup). Under the new DOL rule, the “suitability” standard will no longer be acceptable for IRA’s and retirement plans.


“Caveat emptor”, please note that the suitability standard will still apply to accounts that are not IRA’s or retirement plans. This means that an investment representative may act as a fiduciary for retirement type investments but only follow the suitability standard for your after-tax accounts. It will be interesting to see how brokerage firms and other investment organizations that currently follow the suitability standard transition to their new fiduciary responsibility. Will they only rise to a fiduciary standard for the business subject to the new standard or will they do the right thing and rise to a fiduciary standard for all of their business?


We believe that working hard to be the best fiduciary an advisor can be for our clients is not only good for our clients, but it is also good for our bottom line. As our competitors rush to modify their business model, compliance procedures, educate their staff on all of the necessary changes, and respond to client questions, we will continue to focus on what has been our core value since 1962, “Put the interests of our clients ahead of our own”. This sounds so simple, doesn’t it?




April 19th, 2016
By Jeff Petersen, CEO