Should I have a discussion with my advisor regarding the new fiduciary rule?

Should I ask my advisor if the new fiduciary rule will impact our business relationship? I understand the general guidelines of the rule being put in place in April, but I think it would be an important conversation to have to see if anything may change. How do you recommend I bring this up?

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February 2017

More important than the rule is his/her relationship with you and the environment they are in. Even the best advisor may do things not in your best interest if it means their job -- I have worked in those environments.

I belong to an organization called the National Association of Personal Financial Advisors, or NAPFA. They have been fiduciary advocates for decades. Here is a guide that they produced:

http://www.napfa.org/UserFiles/File/Infographic12516.pdf

The core of all the drama is creating an environment that puts the client's interest first. And to be frank, this rule does not even come close to doing this, but many would say it is better than nothing. To be even more candid, many firms are changing models to be fiduciary in name only. Many advisors are "dual registered," which means they can put on their commission hats when it suits their purpose and then put on the fiduciary hats to look good other times.

And while commissions are the biggest conflict of interest, they are not the only one. Even a firm like Betterment will not say; give us less money and put more in the Roth with the other firm, or into your 401(k). Firms like Fidelity are going to recommend their funds, not what may be best for you. Firms like Edward Jones, Morgan, and Merrill will sell securities from their inventory or work with mutual funds that have revenue sharing. Choosing what produces the most revenue for them, not what may be best for you.

So the bottom line is, find out if your advisor is acting as a legal fiduciary and/or a real fiduciary -- are they in a position where they can choose what is best for you? Disclosing all fees; all conflicts of interest, like revenue sharing, like selling their funds or securities. Make sure they are transparent about what/who is influencing their decisions.

I would use the recent rule as a conversation starter; it is a way to bring it up without being offensive. You could say you have seen others firms talking about it. And to be honest, your advisor should want to talk about it. If they don't, what are they hiding? It's your money, your future, make sure they are acting in your best interest.

Good Luck!

Mark Struthers CFA, CFP®

February 2017
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February 2017