The Department of Labor recently announced that it will postpone putting the fiduciary rule into effect. What does all this mean? First off, let’s explain what the fiduciary rule is. Basically, “fiduciary” means “involving trust.” So, in financial language, a fiduciary is someone you hire who owes you good faith and trust. It means that a fiduciary must place the interest of the client over all other interests, including their own.
The fiduciary rule should sound appealing to you as an investor. It is important for you to know that Doyle Wealth Management is a Registered Investment Adviser (RIA) and RIAs have been held to the fiduciary standard for decades. Having always been a fiduciary (and not a broker), I know no other standard of client care and responsibility.
Brokers are not held to the fiduciary standard. The Department of Labor thought that they should in order to provide a higher level of care and trust for retirement accounts and savings. In all likelihood, the fiduciary rule for brokers is dead, at least for the foreseeable future. That is truly unfortunate for retirement investors.
Given the beneficial nature of a relationship with a fiduciary, I am often asked why anyone would hire a broker or someone who is not a fiduciary. My answer is people hire brokers because they can’t differentiate them from investment advisers. Brokers use many of the same titles used by investment advisers such as “financial advisers” or “wealth manager.” None of these titles are regulated and none of them require adherence to the fiduciary standard.
If brokers are not held to the fiduciary standard, then what standard, then what standard to they follow? It is called the suitability standard. Under the suitability standard, brokers (non-fiduciaries) can recommend an investment that pays them (the broker) a higher fee or commission even if there was a comparable or suitable investment that would cost the client less. The sad part is that this conflict does not need to be disclosed to the client.
Whenever you work with someone who is selling or recommending financial products to you – and that means everything from stocks and bonds to annuities and insurance – it’s wise to ensure they are working with your best interest in mind, not theirs. Always ask if they are a fiduciary, and it may be best to get it in writing.