In the realm of investment advice, all it takes is seeing the definition of “fiduciary standard” to understand why it’s so important:
Fiduciary - “a Financial Advisor held to a ‘Fiduciary Standard’ occupies a position of special trust and confidence when working with a client. As a Fiduciary, the financial advisor is required to act with undivided loyalty to the client. This includes disclosure of how a financial advisor is to be compensated and any corresponding conflicts of interest."
Put simply, abiding by the Fiduciary Standard means putting your clients’ interests first. Most investors might read the above definition and think, wasn’t this the rule the entire time? It should be that simple, right? Not necessarily.
Interestingly enough, before this new regulation it was not necessarily the case that financial advisors had to abide by the Fiduciary Standard. There were certain types of brokers and advisors who could recommend a product as long as it was “suitable” for their clients, meaning they could sell high-commission proprietary products as long as they arguably addressed a client’s objectives.
This is not to say that every broker who does not operate under the Fiduciary Standard gives conflicting or bad advice. There are surely plenty of brokers in the marketplace who care about their clients and who put their clients’ best interests first - the point is that before the DOL Fiduciary ruling, they didn’t have to.
Here are 3 reasons it may make sense to work with a Financial Advisor who follows the Fiduciary Standard:
- Your Best Interests Come First - this one is obvious. Every client should reasonably hold the expectation that their financial advisor is making recommendations with the client’s best interests at heart. This is your nest egg and the assets you’ve worked hard for, and your advisor should do everything possible to help you reach your long-term objectives in a conflict-free way.
- Avoid Commission-Based Products - for brokers operating outside of the Fiduciary Standard, it is possible to recommend a product as long as it is reasonably “suitable” for their client. That means they can recommend proprietary products that result in high commissions or help them reach sales goals. In some cases, that means putting their goals ahead of yours.
- Accountability - the Fiduciary Standard means abiding by rules and regulations and being held accountable. Complying with the rules is challenging for advisors and requires work, and it should be reasonable for a client to expect that their advisor has to follow rules.
Keeping a Watchful Eye on the Fiduciary Standard
Some of the provisions of the DOL’s Final Rule go into effect on April 10, 2017, but all of the rules will not be officially in place until January 1, 2018. Between now and then, however, the rules could easily change. On February 3, 2017, President Trump signed the “Presidential Memorandum on Fiduciary Duty Rule,” which called for re-examining the regulations to make sure they do not adversely affect Americans’ ability to gain access to retirement information and financial advice.
A lot can change in these next few months, and we will be watching closely. At the end of the day for investors, however, the value of working with a Fiduciary does not change. Ask yourself the simple question: should the above definition of Fiduciary apply to the professional giving me investment advice? The answer for most folks is the same.
To work with a Fiduciary at WrapManager or to learn more about the responsibilities of a Fiduciary, just give us a call at 1-800-541-7774 or send us an email to firstname.lastname@example.org.