Consider the word “fiduciary.”
In April of 2016, the term “fiduciary advisor” finally gained some much-needed traction within the public’s consciousness when the Department of Labor (DOL) introduced its “fiduciary rule.”
The DOL’s rule was created to increase both the accountability and transparency of those advisory professionals who make investment recommendations inside the retirement plans of clients.
Simply, it was intended to protect consumers who are using things like 401(k)s and IRAs to save for retirement.
But after two years of delays and debate, the DOL’s attempt at invoking a fiduciary rule came to a screeching halt when on March 15th, 2018, it was snuffed out by the Fifth Circuit Court of Appeals in New Orleans by a 2-1 margin.
As a final (perhaps) nail in the rule’s coffin, just a few days after the decision in New Orleans, the DOL announced it would no longer seek to enforce its original rule. (The whole thing could still end up before the Supreme Court, but that’s far from certain.)
First, three items to consider about the rule, followed by some things you should know about fiduciary advisors:
But after all that, the DOL rule, however flawed, has already had a positive impact. That’s because it:
“A fiduciary duty is the highest standard of care.”
Cornell University Law Dictionary
There are a lot of different professions that offer at least some form of investment advice, Including:
I won’t get into the specific standards for each, but from the list above, only one, a Registered Investment Advisor (RIA) such as Allworth Financial, is both independent and has a fiduciary duty to act in the best interests of its clients 100% of the time.
In defining the fiduciary responsibilities of an independent Registered Investment Advisor, here are some of the guidelines that the Securities and Exchange Commission (SEC) sets, stipulating that RIAs must:
To breach any of these responsibilities could result in considerable penalties, including fines, decertification, suspension or even imprisonment.
Now, compare the fiduciary standards of an RIA with the less stringent “suitability standard” of most insurance agents and stockbrokers. Among other things, the suitability standard dictates they:
There are over 400,000 people licensed to sell insurance in the United States, and who may, in turn, sell or recommend investment products. Conversely, there are only about 12,100 RIAs in the entire country.
If you assume that there are fewer RIAs because the laws and standards are more restrictive, and the processes more regulated, you’d be correct.
Now, to be clear, at Allworth Financial, we are indeed licensed to sell insurance, however, we don’t.
The fact is that we maintain insurance licenses so that we can provide recommendations as part of the comprehensive financial plans we create for clients.
If you aren’t already a client of Allworth Financial, and you want to vet a potential advisor to find a true fiduciary (I encourage you to research us, as well), what should you do? You can:
A big advocate of fiduciary investment advice and retirement planning, I’m guardedly optimistic about the prospects for the SEC to follow up with an enforceable rule with teeth that will be better positioned to succeed (than the DOL’s rule).
But the DOL’s failed rule has certainly helped to put the spotlight where it belongs.
If you have any questions, contact Allworth Financial, today.