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Rule or No Rule: Why You Should Demand Fiduciary Care

Mark Smith, CFP®, CPA/PFS, CIMA® - Thursday, March 2, 2017

M.J. Smith and Associates act as fiduciaries on behalf of its clientsIf you follow financial news, you may be familiar with something called the Fiduciary Rule, a regulation issued by the U.S. Department of Labor (DOL) last year. In a nutshell, the rule would require financial advisors and brokers who handle 401(k) and individual retirement accounts to act in the best interests of their clients.

You may be thinking: “Don’t all advisors place their clients’ interests first?” Unfortunately, some do and some don’t. In the U.S., Registered Investment Advisor representatives are subject to the Investment Advisers Act of 1940, which states these advisers owe clients “undivided loyalty, and may not engage in activity that conflicts with a client’s interest without the client’s consent.” Anyone who meets the Act’s definition of an “investment adviser” must act as a fiduciary.

However, others who may use the term “advisor” – like a stockbroker, life insurance salesperson or someone who sells annuities – only need to provide products that are “suitable.” The suitability standard doesn’t require the financial representative to place clients’ interest first; rather, it requires brokers or salespeople to have a reasonable basis for believing the product they recommend is suitable for the client. And that could leave the door open for potential conflicted advice. For example, if two products seem suitable for the client, but one pays the broker a higher commission, the broker could potentially recommend a product that serves his or her own best interests – not those of the client!

The DOL sought to raise the standard – at least for those selling retirement products – with the passage of the Fiduciary Rule last year. But, less than a month into his term, President Trump signed a memorandum seeking a review of the rule. Originally set to take effect on April 10, the rule now faces a proposed delay while the DOL seeks another round of public comment.


Market Demand for Fiduciary Advice

Even if the rule fails to take effect as planned, the debate around it seems to be raising awareness among consumers who haven’t paid attention to the issue previously. Comedian John Oliver devoted an entire episode of his HBO show, Last Week Tonight, to the Fiduciary Rule in 2016. A few months later, Vanguard’s John Bogle penned an op-ed in the New York Times, predicting the fiduciary principle will live on, and spread. He wrote, “It simply doesn’t seem like a good business practice for Wall Street to tell its client-investors, ‘We put your interests second, after our firm’s, but it’s close.’” Indeed.

I believe it’s possible to obtain fiduciary advice – and to understand when it won’t be – if you ask the right questions. First, ask how your advisor receives compensation. Then ask about potential conflicts of interest, and how the advisor can solve them. Finally, ask if the advisor will act as a fiduciary. If the answer is yes, ask for a written confirmation. You can find examples of fiduciary pledges on the internet.

M.J. Smith & Associates is a Registered Investment Adviser with the U.S. Securities and Exchange Commission, so we are required to act as fiduciaries on behalf of our clients, and have done so since 1983. But we also take our fiduciary duty to heart voluntarily. Each of our advisors has earned the CERTIFIED FINANCIAL PLANNERTM certification, which obligates them to place their clients’ interests first when providing financial planning advice. We follow a strict Code of Professional Conduct that is subject to enforcement by our certification body. After all, your plans are our priority, and our goal is to help you understand how our recommendations benefit you. If you have questions about the Fiduciary Rule, or how we place your interests first, I encourage you to contact us. We’d be glad to discuss it with you.



The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Mark Smith and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and investors may incur a profit or a loss.  Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Opinions expressed in the attached articles and/or video are those of the author or host and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.

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