The Three-Step Investor’s Guide to Navigating the Financial Advisory Fiduciary Issue
As an educator in the arena of personal finance, I generally avoid matters of public policy or politics because they tend to devolve into dogma and division, all too often leaving wisdom and understanding behind. But occasionally, an issue arises of such importance that I feel an obligation to advocate on behalf of those who don’t have a voice. The issue of the day revolves around a single word: “fiduciary.”
At stake is a Department of Labor ruling set to take effect this coming April that would require any financial advisor, stock broker or insurance agent directing a client’s retirement account to act in the best interest of that client. In other words, the rule would require such advisors to act as a fiduciary. The incoming Trump administration has hit the pause button on that rule, a move that many feel is merely a precursor to the rule’s demise.
Why? Because a vocal constituency of the new administration has lobbied for it—hard. They stand to lose billions—with a “b”—so they’re protecting their profitable turf with every means necessary, even twisted logic.
The good news is that informed investors need not rely on any legislation to ensure they are receiving a fiduciary level of service. Follow these three steps to receive the level of service you deserve:
1) Ask your advisor if he or she acts as a fiduciary.
It’s not a good sign if you get the deer-in-headlights look followed by “Fid-oo-she-WHAT?” If your advisor gets defensive, telling you that you’re better off with the status quo, that’s also concerning.
2) Ask your advisor if he or she acts ONLY as a fiduciary.
One of the biggest challenges facing investors today is that many advisors with a genuine fiduciary label are actually part-time fiduciaries. This is where it gets tricky, because there are at least three different regulatory requirements in the financial industry.
Those beholden to the Investment Advisers Act of 1940 and regulated by the SEC are fiduciaries already, and they have been for a long time. Those who sell securities—typically known as stock brokers and regulated by FINRA—are held to a lesser “suitability” standard. Those who sell insurance products may be beholden to an even lesser standard—caveat emptor, or “buyer beware.”
But what if your advisor is like many who are licensed sufficiently that they may act as a fiduciary when they choose, but may also take off the advisory hat and sell you something as a broker or agent? Do they tell you when they’ve gone from one to the other?
You want a full-time, one-hat-wearing fiduciary.
3) Determine if your advisor is a TRUE fiduciary.
This may be the hardest part, because it requires you to read between the lines. There are advisors who now realize that it’s simply good business to be a fiduciary. And while there’s nothing wrong with profitable business, you don’t want to work with someone just because they’ve realized fiduciary mousetraps sell better than their rusty predecessors.
Not everyone who is a fiduciary from a legal or regulatory perspective is a fiduciary at heart, and yes, it is also true that there are those who are fiduciaries at their core even though they don’t meet the official definition in their business dealings.
You want a practitioner who’s a fiduciary through-and-through—a fiduciary in spirit and in word.
“The annulment of the government’s fiduciary rule would clearly be a setback for investors trying to prepare for retirement,” says sainted financial industry agitate Jack Bogle. “But the fiduciary principle itself will live on, and even spread.”
Yes, the good news—for both advisors and investors—is that there is a strong and growing community of fiduciaries, supported by the Certified Financial Planner™ Board, the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA).
Advisors can join the movement. And investors can insist on only working with a true, full-time fiduciary.
This commentary originally appeared February 24 on Forbes.com
By clicking on any of the links above, you acknowledge that they are solely for your convenience, and do not necessarily imply any affiliations, sponsorships, endorsements or representations whatsoever by us regarding third-party Web sites. We are not responsible for the content, availability or privacy policies of these sites, and shall not be responsible or liable for any information, opinions, advice, products or services available on or through them.
The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.
© 2017, The BAM ALLIANCE