Why that investor-protection rule matters to you and your investments

via CNBC

There has been a great deal of discussion lately surrounding the Department of Labor’s fiduciary rule. The chatter from financial pundits and media outlets has focused on the rule being delayed, changed or eliminated altogether.


The latest news now is that the rule, which was to take effect on April 10, has been delayed until June 9.

That’s important information, of course. However, it seems that lost in all this discussion is what this means to the most important part in this conversation: the investor.

There’s a certain level of complexity to the fiduciary rule conversation. And the will-it-or-won’t-it-come-to-fruition aspect of the rule adds another layer to navigate. While it’s high stakes for even the novice investor, worrying about the outcome of the rule should not be the main concern. Instead, understanding what the fiduciary standard means and why it matters should be what is most important to the investor.

The good news is that the fiduciary rule conversation creates a timely opportunity to ask the right questions of your financial advisor and to find out if your financial success is priority No. 1.

In the advisor/investor relationship, trust is paramount. Life, as we all know, can happen fast. Decisions you made about your family finances 10 years ago, one year ago or even last week might be moot or unrealistic at this very moment. That “trust” needs ongoing TLC and can be as simple as a two-way conversation with your advisor.

Think about this for a moment: When was the last time you called your advisor, or your advisor called you, to discuss any changes in your life?

If it was yesterday, congratulations. If it’s been a while, you aren’t alone. But now is the perfect time. You should feel empowered to have a conversation with your advisor that doesn’t directly reference “money.” The fiduciary standard revolves around your best interests as an investor. And your best interests should be more than just your 401(k) balance.

There are three simple questions to ask your advisor to better understand why the fiduciary rule matters to you, your investments and your family’s future.

Question #1: How (and how often) will you communicate with me?

This conversation is long overdue. Tell me how my best interests will be ensured every step of the way. Learn from your advisor how he or she will meet with you and how often you can expect to have a conversation. Discover more about the team of financial professionals who surround your advisor, and ensure that you have direct access to them as well.

It is important they provide that fiduciary obligation across your entire financial life cycle —protection, accumulation, disbursement and legacy.

Question #2: Will you build a comprehensive financial plan around my life or just the investments you manage?

I need to trust you to help me build a solid financial foundation for my family, based on our lives and our needs. Fiduciary is not a certification. Rather, it points to intent. Fiduciaries are advisors who act in the best interest of the client. Your financial advisor should be prepared to grow with you and help you navigate the changes surrounding your life.

You should expect your advisor to build a comprehensive personal wealth plan around your life. We go through various stages in life (e.g., college graduation, starting a new job, becoming a parent, weddings for your children, buying that boat you’ve always wanted, leaving a nest egg for your grandchildren). You should expect your advisor to fulfill the true role of a fiduciary.

Question #3: How are you getting paid to service my investments?

I’ve heard both sides of the fee-based vs. commission-based discussion, but I would like to know which model is best for me.

Asking your advisor how he or she is being compensated to work on your behalf should not be taboo. You should feel empowered to speak candidly with your advisor. Have him or her explain to you the benefits and shortcomings of the recommended payment model.

For instance, our firm subscribes to a fee-based model because we believe it is founded in the spirit of the fiduciary responsibility we hold so dearly, it allows us to be more transparent about our fees, and it eliminates the transactional activity costs that would otherwise be passed along to the investor.

Now, that’s not to say a commission-based model is a negative thing by any means. But you shouldn’t pay a commission for the sake of the transaction — it can be a part of your overall financial plan.

One thing is clear, however: The way investors obtain financial advice is changing. Regardless of the situation on the fiduciary rule, ongoing communication with your advisor is critical to any long-term plan, including candid conversations about the decisions your advisor is making on your behalf — they must be made in your best interest.

When these three questions are asked and answered, you will be on your way to a healthier advisor/investor relationship, and you’ll be better prepared to ensure that your best interests are priority No.1.