I’m hardly a fan of government regulation. But I was strongly in favor of a proposed law known as the fiduciary rule.

The fiduciary rule states that a financial advisor must act in the client’s best interest. That means that even if the advisor will get paid a higher commission on a specific mutual fund, he must recommend the fund that will be best for the client.

It would be difficult to justify recommending a mutual fund with a 5% upfront load and a 2% expense ratio if a similar fund was available with no load and a 1.4% expense ratio.

While there are many excellent advisors out there, there are some who are more concerned with their own commission than their clients’ well-being.

In early 2016, the Department of Labor proposed the fiduciary rule.

Though it had yet to be implemented, it had an immediately profound effect.

Sales of annuities fell 8% in 2016. In the first quarter of 2017, they dropped 18%.

And sales of variable annuities, which are the worst of the worst, plummeted 22% in 2016.

(I wrote extensively about what horrible investments most annuities are in my book You Don’t Have to Drive an Uber in Retirement.)

Think about those statistics for a minute. The rule wasn’t even implemented yet and annuity salesmen were running for the hills.

Immediately after President Trump took office, he promised to do away with the fiduciary rule. Last week, he succeeded. The Fifth Circuit Court of Appeals overturned the rule, effectively killing it.

Not surprisingly, the insurance industry – which sells annuities and other terrible products disguised as investments – had begged the Fifth Circuit Court of appeals to hurry up and kill the law.

That should tell you everything you need to know about who this rule would have helped and who it would have hurt.

The Securities and Exchange Commission has proposed a similar directive called “Regulation Best Interest,” which requires that advisors put their clients’ best interests ahead of their own or their company’s.

But for now, there is no law in place to protect investors.

It may be shocking to realize that under the current law, a financial advisor does not have to put your best interests first. Certified financial planners (CFPs) do. But your run-of-the-mill broker or insurance salesperson does not.

Here are a few tips to make sure you don’t get screwed by an advisor who places his or her wealth ahead of yours.

  • Use a CFP. As mentioned, they must adhere to the fiduciary rule. They typically are paid either a one-time fee or a percentage of your assets to manage your portfolio on an ongoing basis (usually about 1%). That lines up your interests with theirs: The more money you have, the more they get paid.
  • Manage your money yourself. If you own a diversified portfolio of stocks and index funds, your costs will be ultra-low and you’ll know that the person who cares most about your money is the one making the decisions.

When it comes to your investment advisor… clients, beware. Be sure you’ve taken the proper steps to ensure you’re working with someone whose main objective isn’t to figure out how much money in fees he can get out of you.

Good investing,

Marc

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Source: Wealthy Retirement