Unsure what fiduciary means? That’s OK, most people don’t, but I aim to fix that. Believe it or not, there are different standards of care when it comes to hiring an advisor for financial advice. I think it’s just plain old common sense that your advisor should be a fiduciary.
“As an investment adviser, you are a “fiduciary” to your advisory clients. This means that you have a fundamental obligation to act in the best interests of your clients and to provide investment advice in your clients’ best interests. You owe your clients a duty of undivided loyalty and utmost good faith.”
There it is right from the Security and Exchange Commission website, and it’s one of the provisions of the Investment Advisors Act of 1940. You can read the whole definition here.
Who would want an advisor that doesn’t put his clients’ best interest first?!?!
I know you’re probably thinking aren’t all financial advisors fiduciaries? No, if your advisor is a brokerage firm or an insurance agency, that broker and agent are not held to the legal obligation to act in your best interest. Instead, they follow the “suitability standard.”
That means a broker or agent can sell you an investment or insurance product that is suitable for you but doesn’t have to be in your best interest. That sentence cracks me up so much I want you to read it again, slowly this time.
That means a broker or agent can sell you an investment or insurance product that is suitable for you, but doesn’t have to be in your best interest.
Pay no attention to the advisor behind the curtain
Who are they looking out for? The company they represent. Not you, chump. For example, if you want to invest in the S&P 500, a broker could find a fund that has high expense fees and maybe even a loan (loans are a whole other load of @#$# that I won’t get into here). That fund is certainly suitable, but don’t pay attention to the fact that there are probably 500 cheaper S&P 500 funds out there.
Let me stop right here and say brokers are not on the dark side. They do not report to the death star every morning. This is not a good versus an evil article. I know a number of great brokers, nice people, upstanding citizens, who treat their customers very well. Heck, I’d even let them babysit my children. I wouldn’t want them to manage my money or give me advice.
Yes, there are bad apples in every business. We’ve all heard stories of fiduciaries that didn’t quite put their clients’ interest first, but 99% of the fiduciary advisors are looking out for their clients’ best interest.
The Fiduciary story gets worse, much worse
In April 2016 The Department of Labor issued its new fiduciary rule that would have made all financial advisors who provide retirement investment advice held to a “fiduciary standard” that will require them to put their client’s best interests first. It would have expanded the fiduciary duty to brokers and agents as well. Fees would have been required to be disclosed upfront, and it would have been harder for them to sell more expensive, not entirely suitable investments.
Unfortunately in 2018, the rule was squashed because of those with deep pockets in the industry who opposed it. In fact, to make matters worse the SEC has introduced Regulation Best Interest, which was written by the business interests that want to screw the consumer. So not only was the Fiduciary Rule eliminated, but it was replaced by a piece of crap that will allow commission-based advisors to screw consumers even more.
“I am a small business and I am a Fiduciary”
They are only looking out for their own self-interest. Their interest to sell you overpriced, ill-suited investments without your knowledge. For goodness sakes, doctors, attorneys, and accountants put your interest first. There is no reason in the world that the person that provides you with financial advice shouldn’t as well.
I’m proud to be a fiduciary, but unfortunately, I can count on one hand how many times I’ve been asked if I am a fiduciary. To be more specific, I’m looking at three fingers. The most recent was this past spring.
I want to be asked if I’m a fiduciary every single time I get a phone call or an email from a potential client. That is how every initial conversation should go with your financial advisor. If you have no idea if your advisor is a fiduciary, email or call them right now. The answer may surprise you.
DEMAND THAT YOUR ADVISOR IS A FIDUCIARY!!!
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