Why Should You Care About the DOL Fiduciary Rule?
April 7, 2016
Do you think your financial advisor is bound to work solely in your best interest? Most clients believe this is true; unfortunately, it is not. Most financial advisors are qualified professionals that deliver experienced judgement with integrity, but their business standards can vary.
Professionals that work for investment firms registered with the SEC or a state securities agency are legally bound by a fiduciary duty as established in the Investment Advisors Act of 1940. This requires that when they suggest investments and solutions to a client, they must put the client’s interests above their own regardless of the financial advisor’s personal financial and business incentives. Summit Place Financial Advisors has always been a fiduciary to its clients.
On the other hand, financial advisors that work for a broker-dealer have earned their Series 7 license as a “general securities representative” and they have a very different legal standard. These professionals generally work for firms with very common names you probably see in advertisements on TV and in the mail. They work with the specific investment products and solutions their employers offer and their first loyalty is legally as an agent to their employer. When offering a product or solution, they are legally bound by a “suitability standard.” This standard requires that product recommendations must be suitable for the client based on a client’s age, risk assessment and financial situation. This legal standard can often be sufficient, but it does nothing to assure the client’s best interest. The advisor may recommend investment products for which they receive higher compensation from their employer and they have no legal obligation to recommend solutions that actually help a client reach their financial goals.
The DOL’s Conflict of Interest Rule on Retirement Investment Advice is intended to over-ride the “suitability standard” at broker-dealers. It is not perfect as it only addresses advice on retirement accounts; it’s a start. At Summit Place Financial we try to represent everything that is good in our industry to help clients understand the complexities of investing and achieve their financial goals. Most of all, we believe all investors deserve a clear and level playing field when seeking advice.