There’s been a lot of buzz in the media again lately about the DOL Fiduciary Rule. In large part, it seems people are concerned by the Trump administrations announcement to do away with it. Unfortunately, politics as usual, is getting in the way of the issue at hand – protecting consumers and helping them make better financial decisions.
I’m a fiduciary adviser by choice and an advocate for the fiduciary Registered Investment Adviser (RIA) business model. The problem is that most investors don’t understand what that means or how fiduciary advisers are different. Over the past several years, plenty of new financial disclosures and regulations have been introduced, but none of it has done much in the way of helping consumers make financial decisions that are in their best interest. The solution is simple and it’s a growing movement across the country, in small towns, big cities, and on college campuses. It isn’t as fast acting as sweeping regulations, but it’s far more powerful than any government or law.
Let’s back up a second and provide some context to the term “fiduciary”. A fiduciary is someone you implicitly trust to act in your best interest, as it relates to rendering financial advice, the clients best interest always comes first. In addition, fiduciary advisers must avoid conflicts of interest and be transparent in disclosing fees for services. On the other hand, brokers and insurance agents are merely held to a suitability standard and they are oftentimes incentivized to sell specific products (that’s completely legal by the way). When asked, most consumers prefer the concept of working with a fiduciary adviser, but in reality, the clear majority of investors maintain traditional brokerage relationships with financial firms.
In theory, if every adviser was a fiduciary, the world of financial advice would be a utopia; free from competing interests, but that’s not realistic. When you peel away the onion, you’ll learn that many of the large financial firms the DOL Fiduciary Rule is intended to restrict had a hand in revising the rule from its original form. Creating a fiduciary rule which allows for exemptions to the rule itself isn’t helping consumers. If anything, it helps banks and brokerage firms pretend to be fiduciaries, increase revenues, and confuse consumers even more. The real solution to protecting investors and helping them make better financial decisions is simple and it’s already happening without help from new regulations.
As a millennial, I’ve seen a lot of change working in the financial industry over the past 10 years. The discussion about protecting investors isn’t new and the “fiduciary adviser” has been in existence since 1940. I recently spoke at the National LINC conference for TD Ameritrade where over 3,000 financial professionals gathered to network and discuss the future of the financial advice industry. Also in attendance were 50 college students enrolled in undergraduate financial planning programs from across the country. I had the opportunity to speak with many of these students and what I learned may surprise you.
Every student I spoke with shared stories about how they want to help people; help people make more informed financial decisions, help people consider the consequences of their financial behavior, help promote financial literacy in schools and at a younger age. The theme was consistent amongst all the students, the next generation of financial professionals are focused on helping people. They are motivated by doing the right thing for the right reasons and forming relationships built upon a foundation of trust. For these young students, the fiduciary model just makes sense and is the path they are choosing to follow. Similarly, I’ve found that many of my millennial colleagues prefer the fiduciary approach too. Clearly this is what resonates with young people. The future of the financial advice industry is bright, but we still have a long way to go.
I believe financial literacy education is the key, especially when taught at a young age. Additionally, personal finance should be a requisite at all colleges, especially for anyone that has a student loan. The positive impact of these programs and further developing financial planning curriculum on college campuses is an obvious step in the right direction. Most financial professionals today developed their skill set through firm sponsored sales training, not academia. These new and innovative programs are teaching students the fundamentals of providing sound financial advice, not sales.
Regardless of government and regulations, the power of the people will prevail. The next generation of financial advice has a promising future, but it can’t get here fast enough. Take a proactive approach to planning your financial future today! We are here to help you get started.