Understanding the “F” Word of Financial Planning

As a consumer of financial advice and products in a variety of forms, from savings and brokerage accounts to mortgages and insurance, you should think that professionals in the field have your best interest in mind. Unfortunately, the industry is rife with frauds looking for victims; fly-by-night sales people, and fledglings that don’t have the depth and breadth of experience. How do you discern who to work with as a guide on the complex journey of your financial life?

Moving towards the assurance that your perspective will be seen, your objectives will be honored, your voice will be heard and the mosaic of your monetary life will be mulled, you need to work with a fiduciary. Fiduciary is the term normally used for people in the financial or legal world who manage your affairs with an ethical obligation to put your concerns ahead of their own. The word "fiduciary" comes from the Latin term “fidere," which means “to trust." The word "faith" also comes from this root. It is a term sanctioned through professional licensing processes, as well as a work ethic foundation held by a growing number of advisors who seek to serve their clients with integrity, honesty and competency.

The Department of Labor Fiduciary Rule

Since most investors don’t know they have a choice, the Department of Labor set forth a ruling that is to go into effect April 10 of this year. It requires financial professionals who service retirement accounts to uphold the fiduciary standard. Take note, this regulation only covers retirement accounts. This differs from the suitability standard that deems a product recommendation only as “appropriate” for a client. The suitability standard does not reveal the conflicts of interest that may exist when recommending a specific financial product.

As an informed consumer of financial advice, you should ask questions, not only around your retirement accounts, but your entire financial picture. How does the professional get compensated? What is the scope of service they are going to provide? Is it a product or a process you are looking for? How often will you meet? Will they review your investments or give you insight on how all the pieces of your financial life intertwine to work in your favor? Is there more than a product sale relationship? Do you want more than that? (For related reading, see: The DOL Fiduciary Rule Explained as of February 3, 2017.)

It is sad that the government needs to step in and dictate ethics to the financial services industry, but we are all fallible. The DOL ruling may get watered down under the new administration, but your power to make informed decisions is not. Do your homework, ask the right questions, seek referrals from family and friends, and trust your gut. Don’t let emotions (especially fear or greed) dominate your decision-making process. You need to trust and have faith in the people who are walking alongside you in one of the most intimate areas of your life. I believe that as people take responsibility for their understanding, increase their financial literacy and hold accountable an industry that should be serving them, we will continue to see change in the right direction.

Some resources to check out who you are, or are thinking about, working with are: CFP Board of StandardsBrokerCheck, or NAPFA.

Keep fiduciary in the forefront as your financial “F” word, lest you find yourself emitting the expletive immersed in regrets. (For more from this author, see: Why You Should Embrace Your Inner Financial Bag Lady.)