Who Are The Real Fiduciaries?
May 19th, 2016 | Work to Wealth
As I’m sure you’ve heard by now, the Department of Labor has made recent news addressing the important topic of fiduciary standard in the financial services industry.
By definition, a fiduciary is one who acts in the utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client.
DeCesare Retirement Specialists was established on that very principle and it’s an unfortunate reality that not all financial professionals act as fiduciaries to their clients and that our society isn’t requiring them to do so.
I encourage you to read this month’s feature article to learn more about fiduciary standard and how it impacts your financial decisions. Should you, your family, and/or friends ever have a question about fiduciary standard, please don’t hesitate to reach out.
Who are the Real Fiduciaries?
The DOL just published a new regulation that turns stockbrokers into financial fiduciaries when they provide financial advice and services to qualified retirement plans (401k) and IRAs. In the past, these non-fiduciaries (stockbrokers, agents) were allowed to sell investment products to plans and IRAs and be paid with commissions.
There is a provision in the new regulation that allows advisors to be paid commissions when they invest IRA assets. There must be a written contract, signed by the investor that authorizes this method of compensation. The rep is still a fiduciary, but the method of compensation changes from fee to commission.
It is also important to note that this new DOL regulation does not apply to non-retirement assets. Investors are on their own when they invest their personal assets with advisors and stockbrokers.
Are investors really better off?
It depends on how you define better off. There is an extra layer of protection for retirement assets when all types of advisors have to adhere to a fiduciary standard of care. However, the regulation does not protect investors from incompetent advice and unethical advisors will continue to prey on unsuspecting investors.
As was pointed out by another writer, regulations do not make investors safe. For example, burglary is illegal, but there are thousands of burglaries everyday. People lock their doors when they leave home to protect their possessions. Investors are still responsible for vetting advisors before they select them and monitoring their advice, risk exposure, expenses, and results.
There is a strong possibility that investors will actually be more confused when they select financial advisors. In the past, there were clear distinctions between financial fiduciaries and non-fiduciaries. Fiduciaries were paid fees. Non-fiduciaries were paid commissions. Now it is all blurred, which could make the advisor selection process even more risky.
And, the Wall Street marketing machine will do everything it can to make any remaining distinctions even blurrier. It is just getting started creating the loopholes that will minimize its own risk.
How do you protect your financial interests?
Require a written statement from all advisors, regardless of the type of asset (retirement, personal), that documents they are financial fiduciaries and they are compensated with fees for their knowledge, advice, and services. This is your best protection in a very confusing world.
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