For years, our firm has set out to offer a destination where clients can rest assured that their financial advisor will always act in the clients’ best interests. Unfortunately, the financial advising industry, as a whole, has not always followed this same ideology.
The tide does appear to be changing in the right direction. A recent ruling by the Department of Labor (DOL) will help ensure that all financial advisors are held accountable if they are not acting as a fiduciary for their clients’ retirement accounts. Fiduciary duty is essentially defined as the highest standard of care. It requires trust and confidence, which is what we always promote at Allen Capital. While we applaud this newly minted obligation for several reasons, it also raises one big question: Why haven’t some advisors followed this common sense ethos all along?
First of all, we must point out that this new ruling, as much as we like it, only covers retirement accounts. For all other investment accounts, we feel that the overall rules and regulations governing members of our industry leave room for too many instances where clients will sadly still receive poor advice from self-interested advisors. At Allen Capital, we anxiously anticipate the day when being a financial advisor becomes a true profession, with a high bar of expectations for responsibility and expertise. Our society generally reserves a respectable set of minimum core competencies for many groups of important professionals, such as doctors and attorneys, so why not also for financial advisors? After all, many studies have shown that after one’s physical health and family, personal finances are one of the most delicate and essential elements in life.
While we admit that this ruling will unfortunately not directly eradicate poor financial advice, it may have a substantial impact from its indirect effects. Clients across the country are hopefully hearing about this ruling. In turn, we expect the ruling will spark some conversation between clients and advisors about how their financial quarterback is compensated. By simply shedding light on the fact that there needed to be a rule to mandate financial advisors to act in the best interests of their clients, it will most likely expose the firms and advisors who now need to change their business practices. And furthermore, we anticipate that this ruling will raise a fresh wave of skepticism and a potential review of who has truly benefitted from the advice one has received throughout their relationship with their advisor.
Some members of our industry have publicly protested this ruling. We have examined and discussed the ruling many times, and we do not find much weight behind these complaints. The only firms or advisors that will be negatively affected by this rule, in our opinion, are only thinking of themselves rather than the general well-being of our industry. Will there be members of our industry that will be negatively affected by this ruling? Of course. But, from our vantage point, this would be the equivalent of a bank robber complaining about bank robbery hypothetically becoming a crime. Sure, the bank robber is negatively affected, but everyone else is probably better off when robbery is illegal.