Following a long and extensive battle with government bureaucracy, the Fiduciary Rule died on June 21, 2018. The Rule is remembered fondly by its many supporters for the transparency and objectivism it was meant to bring to the financial services industry. It is mourned by the many who believed in its unfulfilled potential.
The Fiduciary Rule had an ambitious goal – to REQUIRE financial professionals who provide financial advice to ensure the advice they are giving is in the client’s best interest and ahead of their own. For much of the history of financial planning, financial services professionals often put their own interest ahead of the client’s, making recommendations that, while not harmful to the client, were motivated to meet their own, best financial interests.
It’s not always easy for a client to spot conflict of interest. That insurance policy you’re being sold certainly sounds like a good way to protect your family, and those specialized investments certainly seem like a good opportunity to grow your assets. But, all too often, it’s the advisor’s assets that are the focus of growth when it comes to traditional financial advice.
For Blue Blaze and fee-only advisors like us who base our entire practice on helping clients reach their optimal life, we feel frustrated when good, hard working people engage with financial professionals who oppose the spirit and practice of the Fiduciary Rule.
And yes, there are professionals that oppose a rule requiring us to put client interest ahead of our own.
What We Lost
The Rule would have formalized oversight and regulation across the industry to ensure that advisors making recommendations regarding a client’s retirement account were providing that advice because it is truly in the best interest of the client. To most people, this feels like a logical safeguard to have in place, but apparently it was too controversial for some.
From our perspective though, the fiduciary rule didn’t go far enough. The conflicts of interest that exist are more pervasive than just those that exist in offering investment advice. We have been calling out these conflicts for years – permanent life insurance (a good product for about 5% of the people who own it – everyone else, sorry, but no.), annuities (again, since it is an insurance product there are huge commissions to the person selling it to you, and a diversified investment portfolio should outperform this instrument), real estate (many opportunities for conflict here), and investment product selection.
Still, it certainly was an auspicious beginning and much celebrated by those of us who value the trust our clients place in us.
Nevertheless, We Persisted.
In spite of the Rule’s death, there is still hope for those seeking an advisory relationship where your best interest is honored and comes first! The Rule leaves behind its powerful message and a spirit of growing accountability and awareness that we feel will live on and prevail.
If you’re looking for a professional financial advisor that practices by the Fiduciary Rule not because it’s mandated, but simply because it’s the ethical choice, here are some things to consider:
- Get Beyond “Fee-Only” and go with a “Retainer-Based” Advisor. The term “Fee Only” is a good start. It means that your advisor doesn’t sell products or take commissions, thus eliminating one form of conflict of interest. But conflicts of interest can still exist. Instead, look for a Retainer-Based advisor – someone whose fee is rooted in a fixed fee, one that will not change based on your financial choices.
- Look for relationships that focus on your entire financial life picture – not just the money you have to invest. Let’s face facts. The relative “alpha” you can get from an investment-only relationship is shrinking by the day as we enter a world of efficient and slick robot investment advisors. More and more, people are stepping off the treadmill of chasing and hoarding dollars and are investing in living their optimal life. This, of course, includes feeling financially secure, but focuses more on quality of life than any sum printed on a spreadsheet. For those of us who are walking this path, we do have options when choosing the best financial advisor for us.
- Hire a Certified Financial Planner (CFP®). Certified Financial Planners are subject to extensive education requirements, one heck of a licensing exam, and two years of financial planning experience. When you work with a CFP ®, you know you are getting someone with the education, training, and experience to talk about your entire life situation.
- Interview multiple Financial Planners and Advisors before hiring one. Ask them questions like:
- “How are you compensated?”
- “Are you a fiduciary?’
- “Will you help me create a comprehensive financial plan?”
- “Can you outline the conflicts of interest that are present in your client relationships?”
- “How will we review and monitor my plan to ensure we are on track.”
I recommend working with an advisor who will listen to you and make the time to understand where it is you want to go. Until they understand that, they shouldn’t be providing any advice.
- Look for an advisor who is a member of well-respected planning associations, such as the Alliance of Comprehensive Planners (ACP). ACP is a non-profit association of fee-only Certified Financial Planners™ who believe in and practice points 1-4 above, as well as commit to a robust Code of Ethics and impressive Pledge to Clients.
So, the federal Fiduciary Rule is dead. And that is sad.
The good news is, you do have a choice, and all the power to make the right choice for yourself -- and the ranks of financial planners practicing in the spirit of the Fiduciary Rule are growing.