The Fiduciary Rule is (Nearly) Dead – Now What?

The Fiduciary Rule is almost here.

Last Thursday, some big news in the financial world didn’t make many headlines. Overnight, the fiduciary rule – a rule that states that a financial advisor must legally act in the best interest of their client – was brought into question.

Specifically, the Fifth Circuit Court of Appeals shut the fiduciary rule down, stating it was unreasonable. They claim the Department of Labor was overreaching, and could not make such rules.

To be clear, financial advisors with a fiduciary duty have existed in retirement planning for a long time. Obama’s administration introduced a new mandate that would require all financial advisors to be fiduciaries, and that’s what’s in the process of being overturned.

The Fiduciary Rule

For those unfamiliar, fiduciaries have a legal and ethical responsibility to act in the best interest of their client. A financial advisor doesn’t need to be a fiduciary, but it definitely helps. After all, wouldn’t you want someone who’s got our best interests in mind if they’re telling you how to allocate your money?

Yet, many financial advisors, particularly at big-name financial firms, are not fiduciaries. Often times they’re essentially in sales. This means that they can offer you any financial products, even if they aren’t a good fit for you.

That sort of relationship can become toxic. Instead of advising clients on the best moves to make for their risk profile, some financial advisors border on predatory. Some sell things like unnecessary life insurance, expensive front-loaded funds, and not offering up sound financial advice.

The fiduciary rule would get rid of all of that, to a degree.

Chances are that most people would be fine with a Total Stock Market Index Fund (like VTSAX or FSTVX) for the bulk of their investments. These funds carry very low fees, which is a win for investors. Sprinkle in some other similar low-cost fees for diversification.

Generally it’s not too difficult to get great results without the ‘promise’ an actively managed fund. In fact, most actively managed funds under-perform on long periods of time compared to a passive index fund.

However, if there’s no legal requirement to not advise clients to buy an actively managed fund, where do you think most people will end up?

The sad truth is that the vast majority of people don’t have the financial acumen to feel comfortable as their own financial advisor. It’s no surprise, then, that many will choose to find a financial advisor to help.

Now What? Educate Yourself

If you use a financial advisor, it’s more important than ever to educate yourself as well.

Nobody cares as much about your money as you do. You owe it to your future self to care about what happens with your money – how you earn it, how you save it, how you invest it.

Basic personal finance isn’t an overly complex subject matter. It’s broad and deep, yes, but you don’t need to go deep on everything to get great results.

My favorite resources include other blogs, the JL Collins Stock Series, and Google. I’ll get a Resources section up soon also that includes some basic information. My Financial Fridays series is also a good primer to get you on a solid foundation.

But once you’re past that, continue to learn.

After you graduate college, you don’t just stop learning. Every day on the job I learn something new. I’m constantly trying to better myself, to be a better person and honestly to make my life easier. Mastering something is the best way to make a difficult task easy. It takes time and effort to get there, though.

Question:

Do you use a financial advisor? Are they a fiduciary?

 

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