Ok, So You Are A Fiduciary, What Does it Mean to Me?

By: Bryan D Beatty, CFP® AIF®

Fiduciary - what does this mean to me? For the last few years the term fiduciary has been flying around the investment community and in the financial press. I am sure you have heard it mentioned on some level or to some degree. But, I don’t know if you truly know what it means to you - the investor or the consumer of financial advice or investment advice.

First and foremost the term fiduciary means you act in your client’s best interest and not your own. Second it means that you avoid conflicts of interest or where they can’t be avoided you manage them to minimize their impact. And lastly, disclose and document your fees and your decision making processes.

The first thing I would want to know next is who is required to be a fiduciary according to the new Department of Labor (DOL) rules. The answer is anyone making a recommendation or providing financial advice for a fee with regard to retirement accounts i.e 401k’s, some 403B’s, IRA’s etc. So, that means almost everyone who today you might think of as a financial advisor, when making recommendations on retirement plans. Recommendation like whether to leave them put or roll them over to an IRA, how to take income or how to allocate the investment options. Any financial advice related to most retirement plans now makes you a fiduciary.

Who were already fiduciaries before the DOL wrote the fiduciary rules for retirement plans?

First, let me explain a few industry terms. Registered Investment Advisors (RIAs) are typically investment companies but maybe individuals who are registered directly with the SEC or state regulators and who do not go through a separate broker/dealer for compliance purposes. Investment Advisor Representatives (IARs) is a person, registered with FINRA who is able to provide investment advice or analysis for a fee.  RIAs and IARs affiliated with an RIA were already fiduciaries under the Investment Advisors Act of 1940 which have different but similar fiduciary standards than the new DOL rules.  

We are IARs and have been for our clients for nearly all of our existence as a firm. And also, those who are a CFP Certificate holders were already held to a fiduciary standard by the CFP Board. In the investment community until this year 2017, they were the only individuals aside from retirement plan sponsors and administrators that were required to act as fiduciaries.

Should advisors be a fiduciary? In our opinion, yes. We have always acted in this manner under the Adviser’s Act and will continue to do so according to the definition of a fiduciary rule under the DOL. What was once a service model differentiator for some has now become the industry standard. Fees are decreasing even more than they had been. But be careful to understand what services you are getting. If you are not getting comprehensive planning services, ongoing monitoring of your plan and review of your investment strategies, you should consider looking around for a different service model. Because the difference in the future won’t be the compensation or fees of a particular investment as much as it will be what are the services being provided for the fee. 

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