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Can you trust your financial advisor? There’s actually one question you can ask to find out. If they answer no — or they give a dodgy answer — move on. It’s not hard to do, but will protect your wealth over time.
For years, financial consumers have been fleeced by brokers, agents and “consultants” who place their own greed above those of their clients. I could fill my basement with stories I’ve covered of those who were swindled.
Under a new Department of Labor Rule, the government wants financial advisors who handle retirement funds to act as fiduciaries, that is, they are legally obligated to put their clients’ interests first. If not, they can be sued. The DOL “fiduciary rule,” which is slated to go into effect Sept. 23 (2024), which had long been despised by Wall Street and the insurance industry, could safeguard your retirement funds. The rule will be fully effective in September, 2025.
“The goal is to minimize conflicts of interest, or at least ensure that they aren’t influencing investment professionals’ advice that lines their pockets at the customers’ expense,” writes Tara Siegal Bernard in The New York Times.
“When the onus is on individuals to save and invest for a financially secure retirement, with money that must last through advanced age, investor protections are paramount,” Bernard adds.
Does this mean than your broker-advisor isn’t acting in your best interest? They may make money for you, but they will always be conflicted if they make money on commissions or trading of financial products.
I’ve seen and reported on countless examples of brokers “churning” client portfolios — often of elderly customers — to generate commissions. Note that brokers are not obligated under law to be fiduciaries and Wall Street has vigorously opposed the idea.
Moreover, there is no legal regulation of the term “financial advisor” or consultant. No specific training, certification or testing is required. Anyone can claim this title without any direct regulatory oversight. At least with the Certified Financial Financial Planner designation, there is extensive training involved. You can even verify their training. It won’t surprise you that most brokers make you sign an agreement that prevents you from going to court if they harm you; instead you will have to file for arbitration.
The bottom-line question for your financial advisor is incredibly simple: “Are you a fiduciary?” If so, they should say so in writing and adhere to a code of ethics and “prudent care.” Don’t wait for the DOL rule to go into effect. It may even get tied up in court again.
And don’t be afraid to ask this question and be bothered by a lot of advisors answering “no.” Most financial consultants, brokers, insurance agents and advisors are not fiduciaries. You will fare better with fiduciary certified financial planners and registered investment advisors. They may still mismanage your money, but if they run afoul of your financial interests, you can take them to court.
