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Fiduciary Musings

It’s about time our regulatory agencies started taking my advice. For years, I’ve been beating a steady drumbeat about why investors should insist on fiduciary standards of care from their financial advisors, so I was heartened by the recent Department of Labor (DOL) fiduciary rule, which has at least pounded a few more nails into the coffin of conflicted advice.

Could it be that Labor Secretary Thomas Perez has been reading my blog? Okay, probably not, but it makes for a nice musing. With the DOL ruling, anyone offering you advice about your retirement assets should be doing so with your best interests in mind.

What’s a Fiduciary?
You can read some of my past posts about fiduciary care here and here. For another great perspective on the meaning of fiduciary, check out this fun (really), four-minute video by motivational speaker Tony Robbins, as he explains fiduciary to Main Street.

Fictional Fiduciary?
Despite the DOL’s advances on fiduciary advice, the ruling did end up including some significant loopholes to accommodate the naysayers. For example:

  • No particular investment products or payment models are outright banned. In our estimation, some of them are so inherently opaque, overpriced and weighed down by weaknesses that they probably should be.
  • There are some gray areas on what does and does not qualify as advice, especially early in the conversation between you and a would-be adviser.
  • There are the usual required disclosures, which are likely to contain at least a few of the usual legal “gotchas.” If they end up embedded too deeply in the fine print, the spirit of the law could end up buried under the letter of it.
  • The ruling only applies to advice related to tax-sheltered retirement accounts such as your IRA or 401(k), rather than the whole of your wealth.

Given these caveats, some of the details of the DOL fiduciary rule will probably need to be challenged in court – and hopefully resolved to benefit the investor – before there is a significant judgment day for those who may be talking fiduciary without truly walking the role.

Advancing Fiduciary Advice: United We Stand
Not to wax too cynical, but this state of affairs is nothing new. As long as there has been commerce, there have been hucksters too. In the wise words of Vanguard founder John Bogle, “There are few regulations that smart, motivated targets cannot evade.”

Given this reality, I intend to keep posting articles about best-interest advice and advising investors accordingly. I hope our regulators will keep tightening any loopholes that make it too easy to evade the best-interest intent. Last but not least, as an investor, you should remain on the look-out for those who may be evading it anyway under the cloak of opaque operations. To get you started, here are some ideas on that.