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Protect your Investments with a Fiduciary Pledge

The U.S. Department of Labor's (DOL) new "Fiduciary Rule" is scheduled to be phased in over 9 months starting in April 2017. This rule will require financial advisors who give advice or recommend investments for retirement accounts (including IRA's) to act as fiduciaries — meaning they'll now be legally and ethically obligated to put their clients' best interests before their own profits.


WHAT? Financial Advisors weren't required to act as fiduciaries before now? Not if they're employed by a bank, insurance company or brokerage firm. And the fact it took the government to force financial advisors to act in their clients' best interests just like registered investment advisors have done since 1940 should, by itself, make you think twice about who's looking after your retirement.

But my retirement accounts are safe now, right? First off, the rule provides for exemptions that allow financial advisors to continue to receive commissions for selling certain products, such as variable annuities and loaded mutual funds, in retirement accounts. Of course, the only way to hold a financial advisor accountable to the exemption is through a breach of contract claim (this was obviously designed by lawyers).

More importantly, the DOL rule seems to only address Duty of Loyalty (i.e., the duty to put the best interests of clients first) when it comes to the fiduciary duty that financial professionals owe to their clients. Somehow (probably lawyers again), the DOL forgot to address Duty of Due Care and Duty of Good Faith in their new rule.

And what about my taxable investment accounts? Sorry, but you're out of luck because the new rule only pertains to retirement accounts.

What can I do? Take charge of protecting your financial future yourself instead of naively relying on governmental rules, laws and regulations. Require all financial advisors who provide financial, investment and insurance advice, products and services to uphold your own personal fiduciary standard, or what we call a Fiduciary Pledge



Essential Duties in a Fiduciary Pledge

Duty of Good Faith

What you need to know

Fair Fees

The obligation to treat all client fairly

Duty of Due Care

What you need to know

Expert Advice

The obligation to exercise the skill of an expert when acting on behalf of clients

Duty of Loyalty

What you need to know

Honest Service

The obligation to put the clients' best interests first

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Fiduciary Options

If your financial advisor refuses to uphold your personal fiduciary standard and not honor a Fiduciary Pledge — which, sadly, will most likely be the case — then you should consider other options that don't involve helping your “salesperson” pay for their Tesla. One option is to find another financial advisor in the same office who will uphold/honor a Fiduciary Pledge .............. like that's going to happen. 

In all seriousness, depending on your preferences and needs, your best options are Online Discount Brokers, Online Investment Advisory Firms (Robo-Advisors) and Registered Investment Advisors. Remember, it's YOUR money and YOUR financial future that you're trying to protect — not your financial advisor’s.

Online Discount Brokers

Online discount brokers are stockbrokers who charge much lower commissions than traditional stockbrokers (i.e., your financial advisor) to buy and sell stocks, bonds and other financial instruments. A Fiduciary Pledge isn't necessary because discount brokers don't give investment advice. However, most discount brokers do provide an extensive array of investment research and tools to help you manage your investments.

Best For:
  • DYI investors and/or active traders
Not a Good Fit For:
  • Novice investors
  • Investors who need/want advice

Robo - Advisors

Online investment advisory firms that leverage computer algorithms, modern portfolio theory and technology to provide asset allocated portfolios at a fraction of the cost of traditional financial advisors. Most Robo-Advisors include automatic rebalancing and tax harvesting as part of their service. A Fiduciary Pledge isn’t necessary because Robo-Advisors are registered investment advisors and are already required to put your best interests first. More importantly, they’ve eliminated a major source of conflict of interest by eliminating the financial advisor from their service model.

Best For:
  • Investors who don't want to invest on their own but who also don't need/want a traditional financial advisor
  • Investors who want to minimize investment expenses and fees
  • Investors with smaller account balances
Not a Good Fit For:
  • Investors who want actively managed portfolios or who need specialized services
schwab portfolios

Registered Investment Advisors

Investment advisory firms (RIA's) that typically offer actively-managed investment portfolios and/or offer specialized financial planning advice and services. Many traditional financial advisors use RIA's to manage their clients investments. While a Fiduciary pledge isn't necessary because RIA's already are required to act in your best interests, you still should use the Fiduciary Pledge Checklist to verify if they meet your Due Care requirements.

Best For:
  • Investors who want/need financial advice but don't want to pay the high fees of brokerage firms and their financial advisors
  • Investors who want more than just investment management services, such as the full array of financial planning services
  • Investors who want/need investing help with their 401k accounts
  • Investors with larger account balances
Not a Good Fit For:
  • Investors who want the lowest cost option
  • DIY investors

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