July 30, 2020
More than nine in 10 Americans think it is important for financial advisors who dispense retirement advice to act in the clients’ best interest. And more than half of Americans think this logical assumption is in fact legally required within the financial service industry.
That means that more than half of Americans are wrong, wrong, wrong.
Only advisors who operate as fiduciaries are promising to always put the client’s interest first. And many advisors do not act as fiduciaries.
A few years ago there were proposals among Washington regulators that would have made a “fiduciary standard” required for any financial advisor giving retirement advice. But those proposed protections have been ditched, and new regulations don’t insist on everyone being held to a fiduciary standard.
Sigh.. As far as I am concerned if you want to work with a professional advisor, you better check that you are working with someone who acts as a fiduciary. And Washington has made it clear it is not interested in helping you out. The new regulation merely requires advisors who earn commissions or have any potential conflict of interest to disclose these facts to a client. I want to make sure you understand this: the government could have said “hey, retirement is so important we will not allow an advisor with conflicts of interest to dole out advice.” Instead, all we got is a requirement that advisors who have a conflict of interest tell you about it.
And that disclosure only has to be in a document a few pages long that you will likely not realize is important to read.
As I explain in my book The Ultimate Retirement Guide for 50+, I think working with an advisor as you near retirement can be such a smart decision given there are so many moving pieces to figure out. (It also can be smart at any age if you are unsure or worried that you are making the best choices.)
The good news is that there are plenty of advisors who indeed hold themselves to the fiduciary standard. And they will likely make it a big point on their website or their marketing material. That said, the first step if you are interviewing potential financial planners is to ask them if they are a fiduciary and if they will put that in writing if you work with them. This should be a super easy request anyone will quickly say yes to.
Please be sure they specifically state they are a fiduciary. If they tell you they will always act in your “best interest” that is not good enough. I know this sounds crazy—you have Washington to blame for this—but “best interest” is not the same as fiduciary. Get confirmation that they are a fiduciary or move on to interviewing someone else.
And while I think it is fine to work with a financial advisor who is a fiduciary, I want to be very clear. The very best financial advisor remains the person staring at you in the mirror. How your money is invested, spent and saved impacts you more than anyone else. With so much on the line, it makes no sense to not be engaged and on top of your finances. And don’t you dare tell me it’s too complicated, or hard, or you’re not good with numbers. If there’s something you don’t understand, an advisor is the perfect person to explain and teach! That knowledge is what will give you the confidence that you are making the right decisions for your future.