Some steps to make sure you get
the best fiduciary advice if the government doesn’t help
When President Donald Trump
ordered a review of the Labor Department’s fiduciary rule for possible revision
or repeal, he put into doubt the government’s commitment to ensuring that all
retirement savers get advice that is in their best interest.
The Labor Department on Thursday
filed a formal notice seeking delay of the regulation beyond April 10, when it
was to go into effect. But you may still want a fiduciary level of oversight
for your individual retirement accounts and other investments. After all, a
fiduciary is required to act in clients’ best interest rather than under the
lower standard of suitability that has governed certain financial professionals
Here’s what you can do to make
sure you are getting the most beneficial advice.
Understand the Sector
While most financial professionals
call themselves “advisers,” there are different types of advisers that are
regulated under different laws and held to different standards. As a result,
the degree to which any given professional advice giver must put a client’s
interests before his or her own varies.
“It remains extraordinarily
difficult for investors to figure out who is acting in their best interests and
who isn’t,” said Barbara Roper, director of investor protection at the advocacy
group Consumer Federation of America.
Advisers come in two basic
flavors: registered investment advisers, or RIAs, and brokers, who are also
known as registered representatives. RIAs are legally bound to serve as
fiduciaries. To minimize conflicts, they are typically paid a fee by clients
and avoid mutual funds, annuities and other products that offer them sales
Brokers, on the other hand, are
allowed to recommend products that pay them the most in commissions and other
incentives as long as the product suits the client’s needs, a practice the
fiduciary rule would restrict.
To ascertain whether an adviser
is a fiduciary, simply ask, said Deena Katz, a professor of personal financial
planning at Texas Tech University. If you get an unclear response, ask the name
of the adviser’s regulator. The Securities and Exchange Commission and state
securities regulators oversee RIAs, while the Financial Industry Regulatory
Authority regulates brokers.
Check for Conflicts
Just because an adviser is a
fiduciary doesn’t mean he or she has no conflicts.
To ferret out conflicts, it is
important to ask the advisers how they are compensated and how they manage the
ethical dilemmas that arise as a result of their fee arrangement.
For example, most RIAs charge
clients a percentage of their account balance for financial planning and
investment management that typically amounts to 1% a year. Clients need to be
aware that such advisers stand to make more money by, say, recommending that
clients refrain from paying down mortgages or giving money to their children,
said Ms. Roper. Advisers are required to disclose such conflicts to the client
and should also present both a recommendation and alternatives.
More fiduciaries try to reduce
the potential for conflicts of interest by charging an hourly rate or flat
monthly or annual retainer fees. Advisers who charge such fees are “indifferent
as to whether the client puts money into their business, real estate, or
investments,” said Jacob Kuebler, an adviser in Champaign, Ill., who charges an
annual retainer fee.
But such fee arrangements create
conflicts of their own. For example, the hourly rate creates an incentive for
advisers to “work as slowly as possible,” said Sheryl Garrett, founder of
Garrett Planning Network, which has 250 members who charge an hourly fee for
financial planning. Ms. Garrett recommends asking for a written estimate of the
total cost and setting a deadline.
Also be aware that advisers at
brokerage firms may be “dually registered,” which allows them to serve as both
a broker and an RIA. To avoid situations in which a dually registered adviser
may work for you as a fiduciary when preparing a financial plan but as a broker
when recommending investments, ask whether he or she will serve as a fiduciary
for you at all times, said Ms. Katz.
Know What You Want
If you’re looking for a
fiduciary, the good news is the number of such advisers is increasing. And
while fiduciaries have historically focused on clients with six figures or more
to invest, more now work with clients of lesser means, using a variety of
Those who want a lot of
hand-holding should hire an adviser on a continuing basis. Traditionally, this
has meant paying an adviser 1% or so of your account balance annually for
financial planning and investment management, with investment-related fees on
Most advisers who charge a
percentage of assets under management typically require a minimum portfolio
size, said Geoffrey Brown, chief executive of the National Association of
Personal Financial Advisors, which has more than 2,800 members, all of whom are
Those with smaller nest eggs, or
who prefer to use a different compensation arrangement, have an array of
The 355 advisers in the XY
Planning Network specialize in clients in generations X and Y, who typically
have incomes of $60,000 or more. The advisers charge a monthly subscription fee
that often ranges from $100 to $200 for financial-planning advice. The Alliance
of Comprehensive Planners has about 150 members who charge a flat annual
retainer fee for financial planning and tax-related advice based on a client’s
annual income or net wealth, said Mr. Kuebler, a former board member.
Those who want a more limited
engagement may benefit from hiring a planner on an hourly basis.
Garrett Planning Network’s
members charge an hourly fee for financial planning—$180 to $300 is typical.
Many clients pay a few thousand
dollars for a financial plan and then schedule periodic updates as needed, said
Ms. Garrett, who said clients can choose to pay the planner an asset-based fee
to manage their investments or simply manage the portfolio themselves.
The advantage, she added, is that
clients pay for no more than they need.
Before hiring any adviser, make
sure his or her expertise matches your needs. At a minimum, most advisers
provide financial planning and investment management. But some firms specialize
in a particular type of client, for example, technology executives with pre-IPO
stock or small-business owners with estate, tax and succession planning needs.
Check the adviser’s disciplinary
history on Form ADV filed with the SEC and look for professional credentials
that require extensive training and experience, such as the certified financial
With or without the fiduciary
rule, it is in your best interest to ensure you are getting a high standard of
care for your retirement assets.
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