Why Your Financial Advisor Should Be a Fiduciary

The word “fiduciary” is back in the news.  How can I emphasize how important this topic is, when just reading the word “fiduciary” puts 50% of readers to sleep? Well, if there are only a handful of REALLY IMPORTANT concepts in investing, this is one of them. So here goes.Back in April 2015, the Department of Labor (DOL) proposed a new rule that sent shivers down the spines of some financial professionals. The “Fiduciary Rule” would require financial advisors, consultants and sales reps to act as fiduciaries when making recommendations on any and all retirement accounts.“Fiduciary” describes a very special type of relationship between a client and advisor. The client is in a vulnerable position, as she is almost certainly not an expert on investing or financial products. So a fiduciary advisor acknowledges and respects that vulnerability by always placing the client's best interest first when giving advice. It is the very highest standard of care.So if someone seems like a financial advisor, but isn’t a fiduciary… what are they?They might be sales reps with a product to sell – think insurance, annuities, mutual funds that charge a commission, etc. They can recommend their products to you if you’re a suitable end user, but they might not be required to look out for your best interest. In the end, the recommendation might benefit them more than it benefits you.Imagine a sales rep can earn a free trip to Hawaii if they sell a certain insurance product to 30 customers this year. If you walk into their office, what do you think the rep might recommend for you? You get the idea.The Obama-era Department of Labor proposed the rule to raise the standards for advisors who work with retirement savers. You won’t be shocked to hear that the Trump DOL disagrees with the proposed rule. They think it will reduce the number of financial professionals willing to work with small accounts, and that it may keep some people from being able to afford investment advising services.Many people – myself included – think the Fiduciary Rule will never see the light of day. The Trump administration is loath to impose new regulations on a powerful, lucrative and entrenched financial services industry.Even so, I think the fiduciary cat is out of the bag. The debate about the rule has effectively launched it into the zeitgeist, and now almost every prospective client meeting I have includes a question about whether I am a fiduciary. (For the record, I am.)Luckily, you don't need the DOL to implement the rule. You can easily implement it yourself, in your own life. Just ask any potential advisor the question: “Are you a fiduciary?” And if not, “Why not?”