Court Rules the Fiduciary Rule Is No Longer Enforceable
The Fifth Circuit Court of Appeals found that the U.S. Labor Department’s fiduciary rule is no longer protected or able to be enforced. The fiduciary rule required financial advisors to act solely in their clients’ best interest as it related to investments into retirement accounts such as 401(k) and IRAs. Practically speaking, this required financial advisors to disclose all fees and commissions, in an easy-to-understand form, that they would earn from your investments and would prevent them from concealing any conflicts of interest. For instance, without this rule in place, financial advisors could take two similar funds, and invest your money in the one that has the higher commission payout for them, thus creating higher revenue for the advisor but hurting the client’s portfolio in the long run due to a higher fee charge.
Now that financial advisors no longer are legally bound to meet the fiduciary standard, they are instead beholden to something known as the “suitability standard.” “Suitability” means that investment advisors are legally required to find investments that are “suitable” for meeting the client’s investment needs and objectives, not necessarily what would best meet their needs and objectives.
How Can I Protect Myself from Advisors who may not have My Best Interests in Mind?
Even though financial advisors are no longer legally bound to act as a fiduciary, for many firms, this has already become an industry standard. Here are several ways to ensure your advisor is acting in your best interest:
Ask them, “What can you do for me?”
Clearly state your investment objectives and ask how they will help you meet your goals. For example, you may want to have a million-dollar-plus nest egg when you retire or you may want to save less now so that you have more money to spend doing things you enjoy. Perhaps you want to take on more risk with the hopes of a higher return. Regardless, ensure that your advisor has a solid plan for getting you to wherever you want to be.
Ask if they are a fiduciary, and require an answer in writing
Requiring a statement in writing that your advisor will act as a fiduciary on your behalf is perhaps one of the most important steps you can take to protect your retirement savings. This will ensure that you know your advisor is picking investments that are best for you and that there are no conflicts of interest such as higher commission fees or a special bonus they receive for selling you a product.
Check your advisor’s background
The Financial Industry Regulatory Authority (FINRA) provides a service called “Brokercheck” which allows you to search for your advisor by name and will report any disciplinary actions taken against your advisor, how many years of experience he/she has, and the states where he/she is licensed to offer investments.
Knowing that your advisor has your best interests at heart can give you the peace of mind you need to get the most out of your life at the moment, knowing that money will be there for you when you decide to retire. If you have any questions about what it means to be a fiduciary, why it’s important, or questions in general about anything you have read; or if you are looking for an advisor who is committed to serving your best interests, please do not hesitate to contact our office. Please contact or call us at 434-589-2958. We are happy to help.