Is Your Financial Adviser a Fiduciary?

February 14, 2017

shaking-hands-on-office-5906x4724_66771It’s common to hear the terms, “adviser”, “broker”, and “planner” used interchangeably.  Do you know which applies to your “financial guy/gal”?  More importantly, is he or she a fiduciary?  Why does it matter to you?

There has been a lot of press devoted to the Department of Labor’s proposed expansion of the “investment advice fiduciary” definition under the Employee Retirement Income Security Act of 1974 (ERISA). If this sweeping legislation is enacted, it will automatically elevate all financial professionals who work with retirement plans or provide retirement planning advice to the level of a fiduciary, bound legally and ethically to meet the standards of that status.

It’s important to understand that there are two parts of a financial adviser’s fiduciary obligation:

  • The duty of loyalty–the obligation of the adviser to act in the client’s benefit and to place the client’s interests ahead of the adviser’s.
  • The duty of care–the adviser’s obligation to act with the care, competence and diligence that normally would be exercised by a fiduciary in similar circumstances.

While the new rules are likely to have at least some impact on all financial advisers, it is expected that those who work on commission, such as brokers and insurance agents, will be impacted the most. The contrast in adviser requirements is most evident when it comes to insurance—a product needs only to be suitable for a client, not necessarily the best for them.

A recent executive order by the new administration delays the passage of the new fiduciary rule for further review.   While politicians, financial institutions and economists debate the minutiae and possibly stall or outright stop the ruling, a simple question emerges.  Given the choice, why wouldn’t you want your financial adviser to be a fiduciary?

A quick check on a well-known dictionary site provides the definition of “Adviser” (or “Advisor”) as follows:

  1. One who gives advice
  2. A teacher responsible for advising students on academic matters (Education)
  3. A fortuneteller (It really says that!)

Nowhere in that list is there a reference to obligation, competence, or loyalty.

Find out if your financial adviser is a fiduciary.  If not, seriously ask yourself how you feel about that.  While there are many non-fiduciary advisers who do, indeed, strive to do the right thing for their clients, do you wish to play Russian roulette with your hard-earned money?