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Protecting Your Investments With a Fiduciary

While many investors may not be aware of the Department of Labor's (DOL) six-year battle to establish a fiduciary standard for anyone providing investment advice on retirement accounts, they are surely aware that President Donald Trump has issued a memorandum aimed at delaying these efforts. On Friday, February 3, 2017, the president announced an executive order to halt the implementation of the DOL fiduciary rule, which was set to take effect on April 10.

Unfortunately for many investors, this news means the responsibility of finding a fiduciary rests on their shoulders. Few investors recognize the difference between the fiduciary standard and the suitability standard. Under the law, a fiduciary's loyalty is to their client. They are required to always put their client's best interest first and fully disclose in writing any potential conflicts. On the other hand, the suitability standard applies to brokers whose loyalty, by law, is to their registered investment advisory firm, not to their client.

Financial Education Is Often Ignored

Although the media frequently tries to educate investors, the information is too often ignored or not completely understood. Unfortunately, what many investors continue to believe is that client loyalty is paramount in all their financial relationships. In reality, most advisors are not required to place client interest first or avoid conflicts of interest. If something goes wrong it’s the client’s loss, and the only recourse they have is arbitration; that needs to change. (For related reading, see: An Introduction to Fiduciary Advisors.)

Even celebrity Johnny Depp was recently misinformed, and filed a lawsuit against the firm that manages his money. Depp mistakenly thought that his advisors were “behaving as a loyal fiduciary and prudent steward of his funds and finances.” If Captain Jack Sparrow, the most savvy pirate, unknowingly received inappropriate advice regarding his money, what chance does the average investor have in finding a fiduciary?

Sources for Information About the Fiduciary Standard

To help investors understand the meaning of the word “fiduciary” and the importance of working with one, the National Association of Personal Financial Advisors (NAPFA) put together an infographic titled, “Fiduciary 101: What Consumers Need to Know to Protect Themselves.” NAPFA’s graphic uses basic terms to define what a fiduciary is, who is considered a fiduciary, and how investors can go about finding one. It also brings to light an alarming statistic: non-fiduciary advice costs investors $17 billion per year.  

Furthermore, through the Committee for the Fiduciary Standard, investors can find a Fiduciary Oath. The oath is a simple statement of responsibilities that everyone can understand, and no fiduciary advisor can possibly object to. The oath can assist individual investors in gaining control of their own relationship. Investors should download a copy of the oath and bring it with them when interviewing advisors. If the advisor cannot or will not sign it, this indicates that they are not a fiduciary. It’s a simple step investors can take to protect themselves and their money. (For related reading see: Ethical Standards You Should Expect From Financial Advisors.)

As fiduciaries, our hope is that information like NAPFA’s infographic and the ongoing efforts of the Committee for the Fiduciary Standard, will assist investors in making educated decisions when it comes to their money.

(For more from this author, see: 6 Life Events That Call for Professional Financial Advice.)