If you’ve never heard about the endless drama surrounding the embattled Fiduciary Rule, I can well understand. It doesn’t hit the radar screen compared to the moment-to-moment goings on coming out of our nation’s capital. Allow me to catch you up.
During the days of the Obama Administration, the Department of Labor put forth a rule (I’m trying to keep this simple) requiring financial advisors to act in the best interest of their clients. The
Trump Administration has asked for the rule to be reviewed (delayed).
Without getting into the politics of this, which is as clear as the nose on your face, there are ‘forces’ that see this rule as a threat to their profits.
Under current rules, advisors who are not acting as fiduciaries — acting in the best interest of their clients — fall under the FINRA regulations requiring that products sold are suitable. It’s easy to confuse and mislead consumers who are unfamiliar with the FINRA terms. Therefore, the words are less important than the meaning behind them; consumers should be screaming that they deserve to have their best interests served.
If you, the client, are not dealt with in a manner that is in your best interest, you have to ask the question: why aren’t your interests being served first and best?
The wirehouses, big banks, and other financial institutions have made billions selling products to customers who believe their best interests are being served, when in fact, that is not the case (at least not as an intent).
I feel pretty comfortable in stating that no one who is working with one of these institutions has been offered a choice between having a fiduciary relationship vs. “hey, this investment is suitable for you”. The reasons are clear: Consumers aren’t educated enough in this arena to know what’s best for them, and the financial institutions aren’t telling them that they have a choice.
Why does this go on, you ask?
The hard truth: If these financial product manufacturers and their selling arms had to act as fiduciaries, in their clients’ best interest, their profitability would suffer.
In addition, the sales force are inadequately trained or supervised to actually ACT in their clients’ best interest. It takes knowledge, experience, time, and desire to ask the right questions and provide advice that is well considered and appropriate for the client.
I am not saying that there are no capable, experienced or caring individuals who sell products to their customers.
I am saying that generally, the culture in these institutions is all about the sale. The commissions, incentives, bonuses, and trips are just too sizeable and alluring – their eyes are on the bonus prize instead of taking the time to dig deeply enough to take the fiduciary role.
These financial institutions have lined up against the DOL rule and provided arguments such as, the cost of compliance as a reason for not wanting this constriction of their ability to do business the way they want to do business and in turn earn the profits they wish to make… on the back of unsuspecting or uninformed consumers.
In other words, the largest brokerage houses and investment firms have invested heavily (government lobbying) to fight against the Fiduciary rule, at the same time as putting out ads showing how consumer-friendly/oriented and caring they are.
Remember the old saying from Watergate days ”follow the money”? Financial institutions that count on same old/same old pushed back in a big way. The reason is obvious: Follow the money.
Before you begin to consider all the reasons why this argument may be false, remember who brought you the mortgage crisis and the near collapse of the financial system (remember the recession?).
Need I go on?
Your hard-earned wealth (whether large or small) deserves to be treated with respect, diligence, and in your best interest. If you are working with a financial person, ask meaningful questions, such as:
1. Are you a fiduciary?
2. How do you receive your compensation?
3. Is your offering compatible with my needs?
4. What can I expect by working with you?
5. Do you have any conflicts of interest?
Start there. Make sure you get answers that make sense and will help you move your financial life forward. Don’t be fooled by the glitzy ads, the event sponsorships, or other factors that have nothing to do with your financial well-being.
The fiduciary rule is under attack again and seems to be on the way out of existence BEFORE it even got off the ground. If you want to understand why, look at the parties fighting against it. It make$ all the $en$e in the world!