Hallelujah! It’s about time — somebody in elected office wanting consumers to understand the difference between a “fiduciary” standard of care and the “suitability” standard.
Under current rules, only financial planners with so-called “fiduciary duty” must invest with the best interest of their clients in mind. Those (insurance and/or investments) without fiduciary duty may guide investment recommendations based on what is “suitable” for their clients.
All licensed financial advisors work under one standard or the other. Do you know which standard your own advisor falls under?
Now, the vast majority of those advisors NOT under the fiduciary standard are not bad people and most do a good job for their clients. However, I do believe that the system they work within and oftentimes the office culture of “we’ve always done it this way” is flawed though.
And can you think of any good reason why the large majority of licensed financial advisors are lobbying so feverishly against this proposed rule that protects consumers?
Certified Financial Planners and Registered Investment Advisors have a fiduciary responsibility to their clients and must always put their interests first and foremost. We must make recommendations based on what we ourselves would do if we were in the same situation as the client. We must put ourselves in our client’s shoes.
That doesn’t mean that things always go “100% right” as markets are unpredictable, goals change, things happen in a client’s life, etc. But the bottom line is that those operating as fiduciaries must always put their client’s interests above their own and make sure there are no conflicts of interest (or they are fully disclosed and discussed).
Advisors operating under the “suitability” standard only have to be able to show that the proposed investment was “suitable” based on the person’s age, time horizon and risk tolerance. Suitable does not mean that they would offer the same recommendation to themselves, their family or best friends in the same circumstances though.
President Obama urged the Labor Department to update standards for financial advisors, saying that all Americans deserve the “peace of mind” that they are getting sound advice on investing their hard-earned money.
Here is the short CNBC video report that s worth watching:
https://www.youtube.com/watch?v=3bYVvK6q6oc
The Labor Department issued a new draft rule would require retirement advisors to put their clients’ best interests before their own profits and prevent them from steering people toward investment products that have lower returns and/or higher risks but make more money for the advisors.
Obama said at an AARP event , “It’s a very simple principle. You want to give financial advice, you gotta put your client’s interest first. You can’t have a conflict of interest.”
What do you think about all of this?
all the best… Mark