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New York May Enact First-Ever ‘Warning Label’ For People Who Want To Protect Their Life Savings


Last week, New York City Comptroller Scott Stringer unveiled a new plan to regulate financial advisers, the first of its kind, that tries to protect the average investor from advisers who don’t have to put their clients’ best interests first.

Currently, the regulations that apply to financial advisers have a carve out for broker-dealers who can give financial advice but don’t have to act as what is called a fiduciary. What that means in practice is that they can recommend investment products to their clients that serve to make them more money but aren’t necessarily the best or right option for their clients. A recent White House report estimates that this conflicted advice costs workers who invest their savings about $17 billion each year.

Stringer has proposed that New York State pass legislation that would require financial advisers to disclose whether or not they are fiduciaries and whether or not they have to put a client’s interests ahead of their own. Brokers, financial planners, and retirement advisors who don’t follow the fiduciary standard, which means put their clients’ interests first, would have to state at the outset: “I am not a fiduciary. Therefore, I am not required to act in your best interests, and am allowed to recommend investments that may earn higher fees for me or my firm, even if those investments may not have the best combination of fees, risks, and expected returns for you.” (...)

But the industry is fighting vocally against the rule and it may take a long time to come to fruition, if at all. “I can’t imagine the DOL proposal, even if it moves as quickly as possible, being in effect before 2017,” said Robert Hiltonsmith, senior policy analyst at the think tank Demos. Financial industry group representatives did not respond to a request for comment.