Hiring a financial advisor is an important step to take when reaching for financial freedom. So choose a financial advisor that is a fiduciary too. Recently the Department of Labor has released a final draft of their fiduciary rules. It mandates and compels financial advisors to place the interest of their client’s as a priority when offering advice on their retirement accounts.
The topic of ‘being a fiduciary’ isn’t new to this blog. More about the issue of financial advisors as fiduciaries under the new DOL Fiduciary rules is to come. The full implementation of these rules went into effect on January 1, 2018. The phasing-in started in April 2017.
So the question to ask yourself, “Should you care or should investors care if their financial advisor is a Fiduciary?”
According to the National Aѕѕосіаtіоn оf Pеrѕоnаl Fіnаnсіаl Advіѕоrѕ (NAPFA) which is the largest professional organization of fee-only financial advisors in the US. A Fiduciary is a person who prudently takes care of assets or money for another person. The Fiduciary position imparts a special type of trust and confidence when working with a client. A Fiduciary is ALWAYS required to act with total loyalty to their client. This includes disclosure of any corresponding conflicts of interest and the compensation of the financial advisor should the case arise.
FINRA (Financial Industry Regulatory Authority) is the body responsible for regulating Stockbrokers, requiring them to make recommendations on the best interest and suitable for their clients. Let’s look at the meaning of the word “Suitable.” Clausen Miller, a law firm in the U.S. with offices in some international cities, defines suitability this way:
“When a financial representative recommends to an investor the purchase, sale or exchange of any security, a financial representative shall have reasonable grounds for believing that the recommendation is suitable for such investor upon the basis of the facts, if any, disclosed by such investor as to his or her other security holdings and as to his or her financial situation and needs.”
With this, we can conclude that clients should саrе if their fіnаnсіаl advisor іѕ a Fiduciary. As a client or an investor, it is paramount for me to know that my financial advisor is acting in my best interests. Also knowing that my financial advisor is making recommendations that are specifically beneficial to me.
Many qualified financial advisors previously subject to the suitability rules are concerned with the welfare of their clients. However, to make things worse, many of the public investors don’t understand that their financial advisors make recommendations that are in line with the advisor’s best interests, not the client. Unfortunately, the vagaries of the suitability rule don’t apply to all advisors. Pay attention to any disclosures and information you receive from your financial advisor. Endeavor to ask questions and don’t settle half-baked for answers.
If you have more questions about fiduciaries or other financial matters, feel free to reach out.