Lots of questions rolling my way on social media this week about the "Fiduciary Rule" that recently went into effect. If you have picked up a newspaper or turned on the news then you have certainly seen something on it. All of us a Total Advisor take a “cut through the crap-ola” approach to…well, everything! So let’s apply the same measure to this moment in legislative history.
It’s a rule that basically says that if you get financial advice, the person giving it to you has to put your interests above their own. (Because legislating ethics and morality works?) This is great in theory! The Fiduciary Rule–in theory–could protect investors from unknowingly buying commission-products where the advisor could be paid more if they recommend one financial product over another.
The backbone of our culture at Total Advisor is to unequivocally do what’s in the best interest of our clients. Before there was a rule about it we volunteered to be fiduciaries in how we practice. What we like about the Fiduciary Rule is that it might (emphasis on might) force investment companies and big broker dealers to clean up their act with the closed-door-deals they make in order to create distribution. It won’t though. Because the rule only applies to retirement money!
How does this affect clients of Total Advisor?
The government is only concerned that you receive conflict-free advice about your IRAs, 401(k), etc. Here forward, you get to sign a ream of paper called the Best Interest Contract Exemption that spells out any possible conflict of interest that might be present when you implement financial advice in a brokerage platform and/or insurance products.
How will this affect people you know?
Sadly, this new rule will alienate a lot of people from access to good financial advice. Large and small firms will drop clients who do not have enough money to be in an advisory account arrangement. Not because they are evil humans, but because advisors assume unlimited liability under this new rule with the Best Interest Contract Exemption.
Firms are hustling to get people out of brokerage into advisory accounts (where a flat fee is charged to manage the assets) and “Sorry We Have to Fire You” letters are going out in truck loads to people whose assets are under the minimum threshold of the firms advisory accounts.
Why is the Hustle to Fire Clients a Problem?
I’ve personally seen thousands of people’s financials. Here’s what I know: Most people don’t manage their money and even fewer feel competent in participating in, let alone picking investments for their 401k or IRAs. In effort to protect the little guy from a shady broker or insurance person, the little guy is now losing access to help with the Fiduciary Rule.
This doesn’t directly affect the clients of Total Advisor, we’re here for you and we are independent from the big banks and financial institutions that are telling “small” investors to take a hike over to eTrade. It does affect the whole of us as a community and nation.
I’m opinionated, Total Advisor is opinionated.
We do this work because we love people and we want our advice and involvement in people’s finances to have impact that ripples across the communities we serve. We remain concerned and optimistic, and we’ve never been more committed to our mission of unbiased advice. Let us know if you have any questions on the Fiduciary Rule.