"A rule that could help consumers is on hold—again"

"Brokerages don’t want to put your interests first

...Most think their adviser already has a responsibility to look out for their best interests; they’re mistaken...

The art of politics may be most visible in delaying important decision-making until it is no longer relevant.

That’s the point we are reaching with the fiduciary rule — a standard that would require financial advisers of all stripes to put the best interests of their customers first — as it has gotten stuck in a legislative abyss that, by now, has swallowed up much of its potential impact.

...the entire process is insulting to consumers, and the only reason that Congress, the Department of Labor and the Securities and Exchange Commission can get away with it is simple: The market has been running at record-high levels and isn’t showing signs of cracking.

At this point, the best consumers can hope for is that the rules finally change to a common-sense standard once there is a significant market downturn to motivate the politicians.

...Until then — when it will be too late to help the people most adversely affected by the problem — the barn door is open for bad actors to have their way and make their escape.

To see why, we have to delve into the surprisingly confusing world of the “fiduciary standard.”

Simply put, someone who acts as a fiduciary or upholds a fiduciary standard has a responsibility to put the best interests of their clients first.

...Someone selling you advice or counsel has a responsibility to act in your best interests, while someone selling you investment products need only find things that are “suitable” for you.

The difference separates most financial planners from brokers.

The planner receives a percentage of assets (or a flat fee) for portfolio management, while the broker is paid by transaction fees and commissions.

As a result, both types of adviser could decide that a client would be best served by owning, say, a variable annuity. The fiduciary would have to sell the client a version with low costs — and low fees — while the broker could sell a higher-priced product, or one that they have special incentives to sell.

Both are “suitable” — appropriate for the customer’s needs and risk tolerances — but only one is in the client’s best interest."


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