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The Fiduciary Rule: A Shifting of the Tide
I received a call the other day from an elderly couple who had recently moved to Flagstaff, and they were looking to bowl in a league. I asked them the typical questions relating to experience, personal goals, and objectives. They were looking for a traditional-length league that was semi-competitive, couples-oriented, and not too raucous, but their real goal was to meet peers who could possibly become new friends. We had the perfect solution. Our Monday night Kranky Foursome league had an opening for two. But I was also launching a new short-season, no-tap league. I couldn't help thinking how a couple of committed bowlers would contribute to the success of that league. I hesitated, considering their best interest versus mine.

Last June, the same day that Theresa May was losing her snap election vote to the Labour party, and James Comey was telling the Senate Panel that President Trump lied, the Department of Labor implemented its Fiduciary Rule. At its core, the regulations narrow the definition of what financial advisors can do. Motivating its passage was the goal to ensure that retirement assets are managed to the highest standards possible. Wall Street financial advisors will now have to put their client's best interests first when working with retirement accounts. Note: your advisor may not be obligated to adhere to this higher standard for your non-retirement investments.

Introduced by the Obama administration some six years ago, the rule is expected to save retirees $17 billion annually; the cost of conflicted financial advice.* How is it that advisors weren't previously expected to act as fiduciaries, or in the client's best interests? That's sounds crazy, right?

Historically, there has been a narrow definition of who is a fiduciary when providing investment advice to retirement plans, participants, and Individual Retirement Accounts (IRAs). Registered Investment Advisors (RIAs) charging a fee for their service qualified; broker dealers charging commissions did not. The thinking is that commissions incent advisors to transact, sometimes unnecessarily, and potentially to the disadvantage of their client. Before the implementation of the rule, broker dealers obligated their advisors to sell investment products that were merely 'suitable' for a client. With so many product lines, these large broker dealers find it hard to ensure that their sales practices are conflict free. 'Suitable' was therefore a convenience.

Fortunately, the Department of Labor's Fiduciary Rule eliminates these risks going forward and imposes the higher standard of care on all advisors working with retirement assets. Certified Financial Planners (CFPs) are also looking to upgrade their definition of fiduciary and their Standards of Professional Conduct, the ethics Bible for their industry, broadening the standards of care beyond 'financial planning' to all 'financial advice.' The Securities and Exchange Commission has also indicated it's going to revisit proposing its own fiduciary standard. The tide is clearly shifting, to the advantage of the retiree.

In the case of my two retirees, as a proprietor I was not beholden to any standard of care beyond a moral obligation to do what is right. If I had been an advisor following historic fiduciary rules, Doris and Ken would be playing tonight in our just-launched no-tap league. It would have been deemed a suitable recommendation based on the criteria. However, that recommendation would not be in their best interest. They would have been paired with much younger single bowlers with very different life priorities. Next time you meet with your advisor, or interview for a new one, ask them whether they are acting in your best interest. You are entitled to know, and they are obligated to disclose it. Just as our guests should bowl in a league that is best for them, your assets should be managed the same way.

*This figure is cited in a 2015 report by the White House Council of Economic Advisers.




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