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Conflicted Advice and the Fiduciary Rule

Safeguarding Investors Should be Mandatory

 

The Department of Labor (DOL) is taking a close look at the fiduciary rule as opposing sides are heating up their banter. On one side, people argue that the rule has prompted many frivolous lawsuits against brokers whose clients believe they breached their fiduciary duty. On the other, proponents say the rule protects investors from conflicted investment advice.

Will the increase in litigation cause the cost of advice to go up? That’s something the DOL will be looking at. Also, regulators want to look into any abuse upon sponsors of defined contribution plans.

While the rule is focused on making sure those who want to offer conflicted advice have a disincentive to do so, President Trump signed an executive order to review and perhaps rescind the fiduciary rule, which went into effect in April.

Before the rule went into effect, a financial advisor who is also a registered broker was only supposed to recommend investments that were “roughly suitable” for their clients. This means that if one fund would offer that advisor a better commission, they were more inclined to offer it to you, regardless of how it would fit your investment planning.

The rule took several years to develop, but it has some flaws, including the fact that advisors have found some ways to work around the rule. Regardless of weak areas, it’s estimated that without the rule, investors were losing close to $17 billion a year due to conflicted advice.

Some in the industry are saying the DOL will find that litigation has increased, which means it could be rescinded. Others, however, believe the DOL will recommend adjustments to the rule, not a full rescinding.

Dan Danford, founder/CEO of Family Investment Center, said as a fiduciary, he and his staff want to put all the information out that they can so their investors are safeguarded. For instance, over a 30-year period, investors seeking advice that turns out to be conflicted see a 12 percent loss in potential growth. That’s not something a fiduciary will find acceptable. Founding the Family Investment Center in 1989, Danford opened his doors as a fiduciary, which was rare at that time.

The best choice, regardless of what the DOL does or doesn’t do with the fiduciary rule, is to seek out a fee-only advisor. These are licensed professionals who don’t take commissions. Furthermore and perhaps more importantly, they’re only looking out for the best interests of their clients.

When you come to us at Family Investment Center, we’ll not only act in your best interests, we’ll walk you through everything you need to know about your specific investment planning strategy.

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