New rules from the Department of Labor require financial advisors overseeing retirement accounts to adhere to the “fiduciary standard.” This means, quite simply, that advisors must always do what is best for the client; the client’s best interest is put ahead of the advisor’s.
Consumer protection groups and most registered investment advisors (RIAs), like us, who already work under the standard, have been in favor of the new rules. Broker dealers and insurance companies have been less enthusiastic, as the new rules will require some changes in how they do business.
When Strategic Edge Wealth Management was formed, it was because Srbo realized he wanted to act as a fiduciary to his clients but wasn’t fully able to do so under his former employment arrangement. When Deborah joined Strategic Edge last year, it was because she wanted to work in an environment where the potential conflicts of interest inherent in the business models of many other financial services companies do not exist.
Most advisors want to put clients first, but many operate in an environment where compensation incentives can prevent that from happening. And that compensation does not have to be disclosed. These interactions are guided by the much lower “suitability standard.”
It boils down to who the advisor is ultimately beholden to. As a fiduciary, it’s always the client. When choosing someone to work with, it’s important to know if that person will truly act as a fiduciary for you.
The new rules won’t take effect April 10, 2017, with a transition period through Jan. 1, 2018.
By that time, Srbo will have been operating under the standard for nearly ten years already.
Note that technically, the new rules apply only to retirement accounts, not to taxable accounts or investments purchased with after-tax dollars. In the long run, it is probably unsustainable that some investment advice is subject to the fiduciary rules and other advice is not—maybe even in the same meeting with a client while reviewing their entire portfolio.
Meanwhile, for us at Strategic Edge, it’s business as usual—always putting our clients first.