Fiduciary Rule Debate

A fiduciary is anyone who oversees other people’s money.  The Department of Labor (DOL) has re-proposed the ‘fiduciary’ definition that they originally proposed in 2010 and received a lot of criticism especially from Wall Street.  Essentially, the DOL with the support of the White House says investment advice for retirement accounts and IRAs must be made without conflicts of interest and that the advisor must act in the best interest of the client.  Most Americans might find it difficult to believe that this is not the standard already.

Registered Investment Advisors are already held to this fiduciary standard.  Brokers or Registered Representatives (most common brokerage firms) are held to a lower “suitability” standard.   The primary argument for maintaining the suitability standard is that the costs of investment vehicles will increase dramatically and that smaller account balance holders would no longer have access to financial advisors and their commissioned products.   This may be true.  While I favor the fiduciary standard, there is a place for some financial advisors to simply “sell” products to those who could not afford fiduciary advisors.

The key to me is that the consumer is well aware of the differences in financial professionals.   In my opinion, a more effective regulation and probably more dramatic is to have only fiduciary advisors or financial planners be allowed to be called Financial Advisors.  Everyone else should be titled Financial Salesperson.

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“A great pleasure in life
is doing what people say
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— Walter Gagehot