Putting our clients first

In support of the fiduciary rule

  1. Capitol Hill image

As a board member of the Financial Planning Association of the National Capitol Area (FPANCA), I recently represented our chapter during the 4th Annual FPA Advocacy Day. Nearly 80 FPA members from 38 states conducted over 100 meetings with lawmakers as we sought to promote full implementation of the Department of Labor Fiduciary Rule, referred to as “the rule,” while discouraging legislation that would delay, repeal, or water the rule down.

Although the rule is often headline news, we regularly get questions from clients and prospective clients who don’t understand how the rule works, or if it will benefit them in any way.

A fiduciary is someone that holds a relationship of trust and loyalty, one that is conducted in a conflict-free manner, and in the best interests of the party they represent, not the best interests of the fiduciary. In contrast, someone who is not a fiduciary may legally give imprudent and disloyal advice that is based on their own interests, not their customer’s, so long as their advice is “suitable.”

The DOL rule is designed to level the playing field, at least for retirement accounts, as it requires anyone (stockbrokers, advisors, planners, insurance agents) who provides investment advice whether on a 401(k) or 403(b), a pension plan, or an IRA of any kind, to provide advice as a fiduciary.

Unfortunately, the fiduciary standard does not apply to assets held outside of retirement accounts, such as taxable investment accounts and trusts. This is where the confusion comes in for investors.

Investors must ask themselves who their broker is really working for: them or their brokerage firm?

Imagine going to your attorney or accountant and having them advise you based not on your best interests, but on what is best for them personally! No one would stand for this, yet big banks and Wall Street brokerage firms continue to lobby for repeal of the rule, because doing so is best for them, not their clients.

As an example, a broker may recommend that a client invest in an IPO their firm has underwritten so long as the IPO is “suitable.” Never mind that the broker’s firm is getting paid handsomely to sell stock by the same company that they are selling to you. Investors must ask themselves who their broker is really working for, them or their brokerage firm?

While the rule is a step in the right direction, we believe that all investment advice should be provided under a fiduciary standard, not just advice rendered on retirement accounts.

As fiduciaries under the Investment Advisors Act of 1940, and regardless of what policymakers do—or don’t do—next, 1st Portfolio will continue to place your interests ahead of our own as we have since 2005!

About the Author

W. Kirk Taylor, CFP®

W. Kirk Taylor, CFP®

W. Kirk Taylor, CFP® is Chief Investment Officer at 1st Portfolio Wealth Advisors. He has been advising individuals, business owners, and affluent families about complex investment and financial planning topics since 1988. He writes and blogs frequently about timely investment and financial topics and is the former host of The Investment Challenge radio program broadcast in the Washington, D.C. metro area on Business Radio AM 570/1260.