Fiduciary: What you need to know


If you follow financial news at all you have probably heard the word “fiduciary” A LOT lately.  This is good news as it means better advice for clients and fewer conflicts of interest for people giving advice, like us.

What is the Fiduciary Rule?

The Department of Labor Fiduciary Rule requires all financial advisors to put their clients’ interests ahead of their own when providing advice on retirement accounts.  This is nothing new at Financial Symmetry as our firm was founded on this sound principal and continues to hold it paramount.  In our firm, the fiduciary standard is applied to all client’s accounts, retirement or otherwise.  We’ve also written other articles pointing out the importance of the Fiduciary standard as early as 2009:

Financial Jargon is Confusing

The need for the fiduciary rule has been mounting. As retirement plans have shifted from traditional pension plans to defined contribution plans, individuals are now responsible for their own accounts.  This is no small feat as managing the accumulation, management and distribution of these accounts is tricky. Juggling that along with your day job and other responsibilities is a big ask.  So consumers turn to professionals for help.  But who can they trust?  The financial industry is littered with an alphabet soup of designations, industry jargon seems intentionally confusing, and the financial media are constantly spewing advice that makes your head spin.  Unfortunately, this atmosphere and a lack of industry regulation and standards has resulted in business models that are not in the client’s best interest at best, and downright fraudulent at worst.  The Fiduciary Rule aims to change all of that, but it’s not perfect.

Read the Fine Print

Ken Fisher points this out in his recent USA Today article, “Don’t roll over for this 401(k) and IRA ripoff.”  You may recognize Ken Fisher from his “I Hate Annuities” advertisements.  I like reading his materials because Ken Fisher is a staunch advocate for fiduciary advice.  He’s not falling for any sales pitch and he doesn’t want you to either.  While the fiduciary rule is mostly great news for consumers, Ken points out an important exemption that you should be aware of.  It’s called the BICE or Best Interest Contract Exemption and essentially allows for variable compensation (“prohibited transaction” under ERISA and IRS rules) with additional disclosure, contract language, and reporting requirements.

All Financial Advisors are Not the Same Unfortunately

Not all financial advisors that accept commissions or apply the BICE are bad people or crooks.  Many do great work for their clients, regardless the standard.  But, the business model fails to align their interest with those of their clients, so conflicts of interest and potential abuses muddy the water.  If you’re in the market for a financial advisor, be sure to ask these five critical questions:

  1. Are you a fiduciary?
  2. How are you compensated?
  3. How is your firm adhering to the new DOL fiduciary rule?
  4. Will you sign a contract stating that you will always work with me in a fiduciary capacity?
  5. Does your firm use any Best Interest Contract Exemptions?

In the USA Today article, Ken Fisher recommends having your advisor sign a letter stating that they will adhere to the Investment Advisors Act of 1940 and always work in a fiduciary capacity when making recommendations pertaining to your retirement accounts.  If your advisor is operating exclusively as a Registered Investment Advisor and is a fee-only firm, they are required by law to act as a fiduciary. So an additional letter may not be necessary, but it’s still a good question to ask.  We also recommend using this NAFPA guide to find a financial advisor.

Copyright: outchill / 123RF Stock Photo

More Like This