You may have heard the term fiduciary come up on the news or maybe in conversations over this past year. If you have not, we look forward to explaining the concept to you, and helping you understand why the term is so important for consumers and investors.
You may have seen in the news, back in June, that the Department of Labor (DOL) fiduciary rule requiring advisors to act in their clients’ best interests when it comes to managing retirement accounts, was repealed. While somewhat of a shock for those financial planners already acting as fiduciaries for their clients, there just was not enough power to sway the SEC and companies that would be negatively affected by lost profits (as sad as that sounds) from sales commissions.
This is a huge blow to consumers as they will have to be more equipped to ask the right questions when it comes to choosing potential financial advisors with whom they work. In addition, this repeal is going to slow down the momentum that was gained in the camp of advisors already acting in fiduciary capacity. Nonetheless, the silver lining is that those advisors who are truly acting in their clients’ best interest, as fiduciaries, will be able to stand out to consumers.
As the dust settled after the repeal of the DOL fiduciary rule, the SEC issued their own rule for brokers that they claim will solve the conflict-of-interest problem. However, the rules that the SEC put out are not clear and allow several loopholes for brokers, ultimately leaving consumers in no better position.
What Is A Fiduciary Financial Advisor?
A fiduciary is a person who acts on behalf of another person or persons to manage assets or give investment advice. (1) Ethically bound by duties of good faith and trust, fiduciaries are to act in the clients best interests. (2) In the context of fiduciary financial advisors, it is an advisor or an advisory Firm that will only give advice or recommendations to a client if it is in the complete best interest of the client at all times.
According to a 2017 study, 93% of individuals working with advisors prefer someone who acts as a fiduciary; yet, only 1/3 of actual advisors can claim to be acting as the client’s actual fiduciary. (3) While the most ideal situation occurs when absolutely no conflicts of interest exist, that is sometimes impossible to create as banks and large financial institutions cannot act free from commissioned sales. However, “financial advisors who follow a fiduciary standard must disclose any conflict, or potential conflict, to their clients prior to and throughout the advisory engagement.”
Examples In Other Industries
Did you know that under current laws, your financial advisor or broker-dealer can receive monetary rewards and other perks for recommending certain investment products, even if those products are not in your best interest? (4) For other industries, however, those kinds of things just do not happen. For example, your attorney cannot take money from the opposing side to give you incorrect legal advice. To go even further, in the medical field, doctors cannot take conflicted payments from drug companies for recommending their drugs to patients. There is definitely a growing side of the financial services industry that is pushing for the transparency and lack of conflicts that we see in other professions; however, we are not there yet.
How To Find Out If You Are Dealing With A Fiduciary
An easy way to make sure that you are working with a fiduciary financial advisor is to request to see the firm’s (or advisor’s) ADV. This form is filed with the SEC and/or state and can most likely be found on the firm’s (or advisor’s) website. In addition, you can also ask the advisor if they have signed a Fiduciary Oath as part of the client engagement agreements.
As a consumer, when you hand over your life’s savings to a professional to help you achieve your financial and life goals, the hope is that you can fully trust that individual to put your interests before their own. The only true way to attain that is to work with a fiduciary financial advisor.
At Mason & Associates, Inc., we stand by the fiduciary standard for all of our clients. If you are seeking this gold standard for your needs, please contact our office today by calling us at (323) 254-3072, or book your free 30-minute introductory phone consultation today!
About Mason & Associates, Inc.
Mason & Associates, Inc. was founded in 1989, specializing in Life Planning for individuals, families, and small businesses. Life Planning places a person’s core life values at the heart of the advice process and focuses on the human aspects of financial planning.
As a client, your personal story is key to our planning process. That is why we strive to build a close relationship that will encompass every aspect of your life. Together with our team of professionals, we guide you through the process of identifying what is important to you, your goals, your dreams. We then put into place a financial road map to set you on your way towards achieving your objectives.
Our responsibility does not end there. As you encounter bumps in the road, changes in goals, or any other roadblocks, we are there to offer advice and guidance. We are there to celebrate your successes and cope with your challenges. We work alongside your other professionals, such as your attorney and your CPA, to be sure all of your legal and financial needs are aligned.