If you’ve been paying attention to the financial news lately, you’ve probably noticed the word “fiduciary” being thrown around. Also known as the fiduciary rule, and it has created quite the commotion between retirement advisors and the financial industry. The Department of Labor has asked financial advisors to hold themselves to a standard that requires transparency and advice that’s best suited for the investor. In other words, the department has determined new rules to guarantee that the advice given to investors about their assets and accounts is trustworthy, transparent, and without conflicts of interest.

The Federal Register says “The final rule treats persons who provide investment advice or recommendations for a fee or other compensation with respect to assets of a plan or IRA as fiduciaries in a wider array of advice relationships.”

A fiduciary is a person who acts on behalf of another person or manages others’ assets.

The official definition of fiduciary says “involving trust, especially with regard to the relationship between a trustee and a beneficiary.” Because of that, the word ‘fiduciary’ can be applied to a huge variety of business relationships: lawyers and clients, executors and beneficiaries, or investment corporations and investors. The word’s connection with the investment world is recurring because it’s a way to bind advisor and investor: one reliable, well-oiled machine.

Fiduciaries will do their best to steer clear of conflicts of interest and operate with full transparency. They hold themselves to a high standard of conduct and trust while avoiding any personal gain through that person that they’re assisting. Fiduciaries have a duty to provide loyalty and care to their clients and to put their client’s best interest before their own. They fully disclose to the client what exactly they are paying for and how much they are paying for a product.

So now you might be thinking, “if my advisors weren’t acting as a fiduciary before, what standards were they operating under?” Most investors don’t know the difference between suitability standards and a fiduciary. Let’s talk about that next since you know what a fiduciary is now! Brokers operating under the suitability standard are only obligated to show an investment was suitable for a client at the time of the investment, rather than in the short or long-term future. Brokers acting under suitability standards can also receive compensation on the products they sell, which could cause conflicts of interest when it comes down to advising on retirement accounts.

Because these conflicts of interest can cost investors around $17 billion in yearly losses, President Obama endorsed the proposal and strongly pushed for its passing. According to the Federal Register the final rule’s effective date is June 7, 2016.

True Measure was a fee-only advisory firm for more than a decade before this ruling because we know it’s the best interest of our clients. Being a fee-only fiduciary allows our advisors to give free advice with a clearer conscience. Our clients feel solid on the grounds that the advice they receive is always in their best interest- because what’s in your best interest is in ours!

True Measure is passionate about educating investors on the different terminology and practices used in the financial world. To receive financial literacy and grow your knowledge with free content, subscribe to our newsletter!

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