Fiduciaries have taken an oath of professional standards designed to protect consumers. What exactly does that mean for you?
Over the years, people have come to feel wary of brokers. They always seem to be peddling some stock or another because well, it's their job.
But that general wariness over brokers often bleeds over into the rest of the financial industry, and people aren't sure what to think: should financial advisors be trusted to act in your best interests? That's because it's not always abundantly clear where their loyalties lie, either.
Consumers Just Aren't Sure What to Believe
Many financial advisors push investments on which they get a commission. That just doesn't settle right with many consumers, who feel they'd rather be talking to a true advisor rather than a salesperson.
They're called commission-based advisors, and some believe there's a true conflict of interest there: they want to sell certain products in order to earn a commission, but those products aren't necessarily what will help their clients reach their financial goals the best way.
The fact of the matter is, brokers have been bound only to recommend only what's 'suitable' to their clients, not what's best.
But That's Changing
There is now a fiduciary standard in place, and it's a step in the right direction, according to many consumer protection agencies and politicians like Senator Elizabeth Warren (D-MA).
Brokers are now required, when they're working with retirement accounts, to act on their clients' behalf in the best possible way. That is, "suitable" just won't cut it any longer.
Registered investment advisors are regulated by the Securities and Exchange Commission (SEC) so they are held to a fiduciary standard. Securities brokers, on the other hand aren't SEC-regulated and therefore haven't been held to the fiduciary standard.. only the suitability standard which of course is lower.
The new rules change that for brokers who advise on retirement funds.
For Your Financial Planning: Always Ask About the Fiduciary Standard!
If you're worried that your financial planner might only be recommending "suitable" investments, just ask. You'll rest easy knowing they're not wearing two hats: one that directs them to help you, and one that directs them to earn more money in commissions.
Finding out whether your financial advisor a fiduciary will either set your mind at ease or give you cause to start shopping around for someone who has indeed taken a fiduciary oath. You can start the ball rolling by asking your financial advisor today about the fiduciary standard.
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Erik O. Klumpp, CFP® is Founder and President of Chessie Advisors, LLC, a fee only financial planning and investment management firm. Based in the Metro Detroit city of Rochester Hills, Michigan, Chessie Advisors specializes in providing financial planning and investment management guidance to teachers, engineers, and young professionals both within Michigan and virtually throughout the United States. He is also Founder and President of Chessie Tax, LLC, a firm that specializes in providing income tax preparation, planning, and bookkeeping services to individuals and small businesses. Chessie Tax, LLC is also based in Rochester Hills, Michigan. Erik and I met at a financial planning conference geared toward Gen X & Gen Y advisors and I asked him to write some thoughts on the Fiduciary Standardas an educational topic for this site. |
Erik Klumpp | Chessie Advisors, LLC