A frequent question I get from my friend’s is “What is a fiduciary?”. This term has been thrown around a lot in the past year as the US Government is implementing a new law. The law will require financial professionals managing or offering advice on your retirement accounts to act as a fiduciary.
So what is a fiduciary?
A fiduciary is a person who has a legal obligation to act in your best interest. This means a financial advisor who has taken a fiduciary pledge has committed to acting in your best interest, above their own. I know you are thinking “Wait, this hasn’t always been the case?!?” The answer is no. The current laws in the US require financial advisors to provide you with just suitable advice. They do not have to put your best interest first.
The dress metaphor
The best analogy I have heard on the topic of “What is a fiduciary?” deals with a salesperson recommending a dress. Current law says that a salesperson must give you a dress that fits (ie a suitable recommendation). The new fiduciary regulation requires the salesperson to find you a dress that actually looks good on you (ie best interest).
When does the fiduciary law go into effect?
Technically the law goes into effect on June 9, however organizations have at least until the end of the year to comply. Not surprisingly the financial industry is fighting against this regulation saying it is too onerous. My favorite argument is that financial firms are saying that their advisors are just “salespeople”. They can’t be expected to put your interests above their own. Yes – the same companies that constantly run commercials about how their advisors are “there for you” and “want to help you plan for dreams” etc are now saying “Hey these guys are just salespeople”!
No need to wait for the law
Many organizations, including NAPFA, XY Planning Network and the CFP Board, have all members take a fiduciary pledge. These organizations have required their members act in their client’s best interest for years. If you are looking for financial advice don’t wait for the law to go into effect. Choose a financial planner or advisor who has already taken a fiduciary pledge.
Want to discuss what it means for a financial planner to have taken a fiduciary pledge? Schedule a call with me. I have taken a fiduciary pledge as a member of the XY Planning Network.
Make sure your friends and family are receiving financial advice from someone who is required to put their interests first. Forward this article to them.