The Fiduciary Standard—What It Is, and Why It Matters

07/09/2019 - Retirement

If it feels like you’ve been hearing the term “fiduciary standard” more often lately, you’re right. The reason? The death of a federal rule, which took effect in April 2017, but was vacated on appeal in early 2018. The rule extended fiduciary protections to small investors saving for retirement.               

         Despite its legalistic overtones, the fiduciary standard is far less complex than it sounds. In the case of this now-dead rule, it simply meant that financial industry professionals who advise clients on how to plan and save and invest for their retirements were legally bound to do so with their clients’ best interests at heart.

         The rule aimed to expand to “fiduciary” the prior standard, which required financial advisors to provide only “suitable” advice. 

         Think of the difference between the two this way: That donut spare tire that comes standard with new cars is suitable; it will get you down the road to a service center, where you can get the real thing. (Just don’t exceed 50 miles per hour!)

         But you’d surely feel safer—and be able to go much further—on a regular, full-size tire.

         Similarly, advisors working to the fiduciary standard aim to help individual investors meet not only their short-term objectives  but also to enjoy comfortable retirements as well, whatever that means to them.

         As written by the Obama administration, the fiduciary rule protected people saving for retirement from financial advisors with clear conflicts of interest. That could mean recommending a stock or bond or annuity or other vehicle in order to reach a sales quota and benefit personally, rather than because buying it is in the best interest of their client.

         If protecting people who are saving for retirement from those more interested in their own success than in the buyer’s goals seems like common sense, I agree. Don’t ask me to explain why the rule was overturned in court, because I find it both inexplicable and inexcusable—if, as a nation, we are truly interested in preventing the financial services industry from taking advantage of small investors.

         But let me climb off of that soapbox and onto this one: Despite the game of legalistic football being played over protecting individual investors, there are investment and wealth advisors who embrace and work to the fiduciary standard anyway, every day—because our personal ethics won’t let us even consider doing otherwise.

         I’m extremely proud to be one of them, and the “A.I.F.” behind my name (it stands for Accredited Investment Fiduciary®) indicates it.  

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