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| Pathways Advisory Group, Inc. Evon Mendrin |
America’s brokers and financial representatives giving advice on retirement savings accounts are finally required to act as fiduciaries.
The U.S. Department of Labor’s Fiduciary Rule partially came into effect on June 9th after much delay and not without a fight. The rule requires financial professionals working with retirement accounts – such as IRAs – to work in their clients’ best interests rather than simply finding “suitable” investments. Now, there’s a higher level of accountability and conflicts of interest are to be disclosed. (See here for more detail on the law).
While this may seem like an obvious thing for someone in that position to do – and I’ve personally known many brokers and reps to work under that principal – they were not required by law to do so!
If you’re not entirely sure what that means or how it affects you, you’re not alone. A recent survey by Financial Engines shows 93% of Americans think financial advisors should be legally required to put their clients’ interest ahead of their own. However, 53% mistakenly believe that all financial advisors are already required to do so.
It’s not entirely the clients’ fault. A great issue in the financial services industry and the planning profession is that confusion abounds. Everyone uses the same terminology – broker, representative, advisor, planner, fee-based, fee-only – it’s easy to think everyone’s the same. However, there are many differences.
Some may say the law is not quite enough, as it only includes retirement accounts (what about every other part of your financial life?). It's not perfect, but it could be a step in the right direction.
As a fee-only financial planning firm, we’re proud to have served as fiduciaries all along. The best thing you can do for yourself is to know the professionals you work with (or want to work with). See our Searching for an Advisor page for more information on different types of financial professionals and business models – from commission-only to fee-only and everything in between.
Lastly, the video below, courtesy of Hightower Advisors, gives a great overview of the simple differences between a broker and a fiduciary. Do you want to work with the butcher or the dietician? Ultimately it’s up to you and your situation, but an informed decision is the best decision.
(Credit: Hightower Advisors, YouTube)
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