I am not a political guy…well at least not in public, and I accept that we currently have a President Donald Trump. After all, while the masses did not vote for him, he won the Electoral College and is our rightful president. It was almost like he was playing chess while the Clinton campaign was playing checkers. Do not expect to play checkers and win a chess game. The last few weeks are quite controversial, as President Trump has signed 8 executive orders at the time of this writing, including one on the fiduciary rule.
Obama actually had him beat on number of orders at this point in his presidency. The difference is, many of these orders have been controversial. Whether it was the immigrant, Muslim, terrorist, refugee or whatever other way you want to identify it ban, the increase in mortgage rates, or the symbolic repeat of the Affordable Care Act (aka Obamacare), he has been making a splash and keeping his campaign promises. In the mix of all of this, some equally important but less sexy moves were made. What am I talking about? How can President Trump do something less sexy then what he already has? Well, I am talking about the fiduciary rule!
What in this great earth is the fiduciary rule you may ask?
Well that is a good question with an answer that is quite simple. The fiduciary rule, set forth by the Obama Administration through the Department of Labor, basically ensures that financial advisors work with the clients best interest in mind and avoid conflicts of interest when possible (i.e. not sell you a crappy product just to line their pockets).
Additionally they would be transparent about their fees and how they made money. It is nuts to me that this even has to be stated. In many states a used car salesman cannot sell you a lemon, but a financial advisor can sell as many lemons as he wants! I think most of us would agree transparency and fiduciary responsibility is a good thing, and it is quite sad that it is not the industry standard. This rule (while not perfect) was trying to improve transparency in the world of finance. It was set take effect in April 2017.
So what did President Trump do? Well he went ahead and signed a memorandum on Friday February 3rd, 2017 that roles back this rule. He did not get rid of the rule completely (at least not as of yet), but asked for the Department of Labor to review it and probably delay it’s implementation until April 2017. This sucks. This goes against common sense, but in the scheme of things he is currently doing it is a blip in the news.
Why is it bad?
Well if you use a financial advisor and don’t pay attention to your finances, retirement, or investment (the majority of Americans unfortunately), then a little bit of protection just went away. The financial planner can still sell you lemons with no recourse. Sucks right. You are already paying them high fees, and now they can continue to screw you for many years to come. There however were some benefits from even Obama’s transient passing of this rule…
So why is it not all doom and gloom?
If you use a financial advisor (Note, I am not against financial advisors if they are fee only and think there can be a benefit. However, if you are at all interested in finance, as I suspect you are, then get your own financial house in order as I discuss here. Now if you are dead set on using an advisor then here are the benefits…getting off my soap box now.)
1) Some act as a fiduciary and thus work for your best interest.
2) Many companies already spent the money to prepare for the change in rules and it is unlikely they will roll back their plans. After all, it is good public relations to go forward with your clients’ best interest.
If you do use and advisor then ask some questions.
You should always be skeptical when starting with a new agent. Always! Would you trust your baby with a babysitter you barely know? Of course not! So don’t trust your hundreds to thousands of baby dollars with a unknown advisor! Those babies gotta grow right and big…so ask the following:
– Are you a fiduciary advisor?
– When you sell me insurance, are you working on the suitability standard of care (meaning they only have to sell a product that is suitable for your needs but not necessarily the best for your needs).
– How are you paid? Fee only? Compensation for selling items? Transactions fees with buying and selling stocks?
– What are your certifications: experience, credentials, and continuing education credts? Do you have references? There are Certified Financial Planners (CFPs), Certified financial advisors (CFAs), etc. Do some research and pick which is right for you.
What about us…the ones reading this post?
1) First off, most people reading this site are DIY investors. If you are, then the ruling does not really affect you. Investing in a Vanguard Index fund (like I discuss here) and not using an advisor gets around this rule. You don’t have to worry about some agent screwing you over.
2) Really that is all I have. This is not good news. The fiduciary rule should stay in play and protect the unsuspecting. Debt, retirement, investing; these are all big problems sitting like heavy weights on America’s shoulders and if we can make it a bit more transparent then great. No more Wolf of Wall Street lifestyles with all of their vices (think strippers and cocaine).
Does this potential ruling reversal affect you at all or are you a DIY investor?