“’I think the genie is out of the bottle,’ Ms. Borzi [Phyllis Borzi, former Labor Department assistant secretary] said in an interview. ‘The market has already spoken. The best interest is what they are asking for and what consumers are now beginning to expect…’” The Wall Street Journal, February 6, 2017
Last Friday, President Trump issued a Presidential Memorandum delaying the implementation of the Department of Labor’s fiduciary rule, and an Executive Action calling for a review of the Dodd-Frank legislation signed in reaction to the financial crisis. This allows his administration to further review the DOL fiduciary rule put in place under the Obama administration and set to take effect in April. This should come as no surprise as President Trump has telegraphed this action for quite some time. Whether or not you agree with the rule, its purpose was to require that financial advice given to investors with 401(k) accounts or IRAs be in their best interest. This rule has been debated far and wide since it was announced, but I don’t believe it is the rule that matters most.
As an investor, regardless of the rule, you should make sure that you understand the basis of the business relationship you have with the person providing you investment advice. Are they required to place your best interest first, or are they selling you a product as a broker or agent? Understanding that motivation will better help you in your decision making process. Advisors earn a fee for their services while brokers and agents typically earn commissions though sometimes they also collect fees. The fact that some financial professionals charge both commissions and fees makes things confusing. However, one simple question can clarify the relationship. Is that person held to a fiduciary standard of care in your relationship? If the answer is not immediately yes, then the answer is no in spite of what equivocation you might hear.
Financial professionals of all types play important roles in the industry. An investor is likely to have dealings with advisors, brokers and agents over the course of an investing life. You owe it to yourself to fully understand the relationship and its potential conflicts of interest. Regardless of a rule imposed by our government, taking the steps to clarify the exact nature of the relationship with your investment professionals will help you make more informed decisions about your investments.
In the interest of full disclosure and admittedly a shameless plug, Registered Investment Advisors, like ThirtyNorth Investments are legally bound to a fiduciary standard, which means we must give investment advice in your best interest. That is why our clients are the only ones who pay us for investment advice and we do not earn commissions from the investments we recommend.