What is a Fiduciary?
Effective June 9th, 2017 the Department of Labor rolled out a new law sponsored by the Obama administration that requires any financial professional to act in the best interest of the client when handling retirement investments. Up to this point, an advisor that was not a “fiduciary” had absolutely no obligation to put the needs of the clients ahead of their own. In fact, as long as the recommendation was “appropriate”, it was deemed acceptable.
The new Fiduciary rule means that all financial advisors, financial planners, brokers, wealth managers or anyone else advising on retirement accounts must adhere to the “impartial conduct standard”. It requires the advisor to place the client’s interest first in all dealings and to charge no more than a “reasonable rate”. Under the old rules, an advisor making a recommendation of two similar funds (such as an S&P 500 index fund) could recommend the fund that paid them the highest commission, even though that fund might also charge the client the largest annual expense. The fund is “appropriate” and thus completely acceptable. I have seen cases of advisors putting clients into an S&P 500 fund that charges 1.5% when the equivalent Vanguard or Schwab fund charges a mere .03%. The recommended fund has fees that are 50 times greater than the lowest price funds for something that is identical. Consider purchasing the book “Moby Dick”. One retailer may sell the book for $6 and another for $25. The book itself is no different, the words under the cover are identical, so why the disparity in prices?
Under the new Fiduciary rule, this type of commission engineering will not be allowed. However, according to a study done by Personal Capital early this year, 46% of Americans were under the impression financial professionals were already required to act in the best interest of their clients. The public already expects it and assumes they are getting it. Until June 9th, in many cases they were wrong.
Remember, this is only for advice on retirement accounts (401k’s, IRA’s, pension plans). Advisors are still allowed under current law to put themselves ahead of their clients for taxable investments. It is important to understand this distinction when deciding which advisor is right for you.
Zynergy Retirement: A Fee-Only Registered Fiduciary
Fortunately, if you are reading this article and are already a Zynergy member, you have nothing to worry about. Zynergy has been a fee-only registered fiduciary of all accounts since day one. We have built our business model around putting our members first and eliminating conflicts of interest. You would be hard pressed to find any fee-only financial planner that is not a fiduciary as the compensation model alone aligns the incentive of the advisor with that of the client.
There was and remains tremendous push back by much of the industry regarding the fiduciary rule. It seems laughable to me that much of the financial services industry is arguing against putting client needs ahead of their own. Frankly, I think it is a sad commentary on the long-running abuses by this industry on the public at large. However, we at Zynergy are committed to acting as a fee-only fiduciary where people can rest assured that they are working with a group of professionals who understand that taking care of their needs is priority one.