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Reish: Best Interest Isn’t ‘Single Best’

If you’ve been wondering if satisfying a “best interest” standard required satisfying a single best criteria, wonder no more.

In a recent blog post, ERISA attorney Fred Reish explains that, because of concerns that the fiduciary rule might be interpreted to require that a “best” investment requirement would apply, the Department of Labor explained in the preamble to the fiduciary regulation that: “the Best Interest standard does not impose an unattainable obligation on Advisers and Financial Institutions to somehow identify the single ‘best’ investment for the Retirement Investor out of all the investments in the national or international marketplace, assuming such advice were even possible.”

So, Reish notes that “if you ever had any doubts, it should be clear now that the ‘Best’ Interest Standard of Care is just a label.”

But if the requirement isn’t that the best investment be recommended, what is it? Reish says it’s the same standard that advisers have used for about 40 years in recommending investments to ERISA-governed, tax-qualified retirement plans. In other words, it’s been around for a long time and many advisers have survived and thrived under that standard.

He notes that the duty of prudence should not be confused with the suitability standard, and that while unsuitable recommendations will not be prudent, it does not necessarily mean that suitable recommendations will be prudent.

He closes by cautioning that advisers who have not worked with retirement plans under ERISA’s prudent man rule should consider education about the processes required for compliance with the fiduciary standard.

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