It’s pretty clear: Americans want their financial advisers to have their best interests at heart in making savings and investment recommendations. Unfortunately, many in the financial industry don’t want this responsibility, also known as acting in a fiduciary capacity.
How federal regulators and the industry reconcile these conflicting views in the coming months will help shape the financial advice consumers get for years.
According to a recent survey from Financial Engines, 93 percent of Americans think financial advisers who provide retirement services should be legally required to put their clients’ best interest first. However, 53 percent of those surveyed mistakenly believe all financial advisers are already legally required to do so. (Financial Engines is the nation’s largest independent investment adviser and is an institution that accepts fiduciary responsibility when making recommendations to its clients.)
The Financial Engines survey is consistent with other, similar surveys of Americans, who have expressed a fairly low trust of financial institutions.
The U.S. Department of Labor (DOL) issued regulations during the Obama administration that would require financial advisers and institutions to act as fiduciaries when making retirement recommendations. These regulations would also encourage financial advisers to be compensated in a manner that doesn’t create financial conflicts of interest when they make retirement recommendations.
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These regulations were scheduled to go into effect on April 10, 2017, and could have helped bolster Americans’ trust of financial institutions.
However, the Trump administration asked the DOL to review the rules and receive comments from the public, and it recently announced a 60-day delay of the effective date. The DOL recently reported that it has received 193,000 comment letters, 178,000 of which opposed any delay of fiduciary rules. The DOL received 15,000 letters supporting pushing back the effective date of the rules or their outright repeal.
Opponents claim that the rule, as drafted, is too complex to administer, will encourage harmful lawsuits and will result in fewer Americans receiving advice on their retirement investments. A sampling of the comments posted on the DOL’s website show that most financial institutions or industry groups support further delaying or fully repealing the fiduciary rule. Groups that protect consumer rights generally support the rules and are against delaying them.
It’s uncertain whether the federal government will ever protect American savers, so it’s up to you to be savvy shopper when looking for a financial adviser. The Financial Engines’ survey indicates that if survey respondents learned their adviser wasn’t a fiduciary, only 12 percent would continue working with that adviser in the same way. The rest would either ask more questions of their adviser, switch advisers or stop working with a financial adviser altogether.
The Financial Engines report encourages investors to ask the following questions of potential financial advisers:
- Are you a fiduciary?
- Do you receive any type of compensation in addition to what I’m paying you? That is, are you receiving a commission from an insurance company or mutual fund company that could create a conflict of interest when steering me to a particular product?
- Are you dual-registered? Some advisers are registered as investment advisers and broker-dealers. Usually a broker-dealer is acting as a salesperson. If your adviser is also a broker-dealer, ask what role he or she is assuming when providing advice to you.
- Have you ever been cited by a regulatory or professional body for disciplinary reasons?
Buyer beware. It’s your money and your retirement. You deserve to ask questions that help you make informed decisions about your future financial security.
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Source: CBS News – Moneywatch