Why You Want A Fiduciary In Your Corner And What It Means When You Don't

Forking over your money to a financial advisor on the good faith that they'll do what's best for your isn't a sound strategy. Sure, there are laws in place to make sure advisors don't take your money and run, but do you really know how they're making money?

There's only one way to be absolutely, positively sure that your advisor is going to act in your best interest.  

We're going to explore the importance of fiduciaries and unpack the significance of Merrill Lynch's recent change of heart on the subject. 

Fiduciary no more.

Two years ago, during the Obama administration, the Department of Labor was strongly pushing for the idea called the Fiduciary Rule.

Before we go on— a fiduciary is someone who is licensed and required by law to act in your best interest. In the investment world, if you're not a fiduciary, you're likely a suitability licensed advisor and it's legally permissible to act in a "suitable" manner and not in the client's best interest.

It's a black and white distinction, and shockingly only eight percent of investment companies and advisories are fiduciary only advisors. And for the record, our firm is fiduciary only

Here's why it's such a big difference


Potentially lurking beneath the surface of suitability licensed advisories are lavish incentives like vacations and fat commission checks for advisors who are selling you a bill of goods in the form of products or accounts that you don't need just to get their free vacation to Maui. 

I share that anecdote with clients and they slough it off but it’s the honest truth. I've witnessed it with my own eyes. There are nefarious folks out there monetarily benefiting off of your vulnerabilities and it's a practice that sets me off just thinking about it. 

Enter: The Fiduciary Rule

The federal government and Department of Labor came along and said they were going to put the kibosh on the open practice. The decree was such that everyone who deals with retirement accounts—regardless of fiduciary or suitability licensure—was going to be held to the best interest standard.

Now there were problems with the Fiduciary Rule, but the underlying concept was rock solid: Those who claim to be advisors need to be held to a uniform standard of best practices, judgement and accountability. 

That Sounds like something we can all get on board with? Not exactly...

To the insurance and suitability worlds, the Fiduciary Rule meant they were going to lose a ton of money.

others read The writing on the wall and acted

Two years ago, Merrill Lynch jumped in front of the anticipated rule and moved all of its retirement accounts away from suitability based and to commission based. 

Then it rolled out a campaign advertising the change. Here's the tagline: 

“We are committed to your best interest, not the status quo.”

To me, the copy reads very City upon a Hill, pious and virtuous. It's not a reach to interpret Merrill Lynch's stance as essentially saying, "We're here for you. Even though the rule hasn’t officially been put in place, we’re going to embrace it, not because we have to, but because we believe in it." 

Merrill lynch made a hard u-turn 

The Fiduciary Rule died with Obama and the financial services firm reneged and reverted back to commission-based to retirement accounts. This means that Merrill Lynch can return to compensating and incentivizing its advisors with luxury vacations based on sales. 

What this means for your investments and your future

Being profit driven introduces unhealthy and nefarious behavior. 

As far as I’m concerned, your knowledge of your advisor's license and designation is a non-negotiable. You're entrusting your advisor with your money and future, so you need to know what's motivating them to ensure your success. 

Cut the ambiguity. we're an open book.

If you don’t know if you are working with a fiduciary or if you’re looking for a financial advising firm that holds itself to a higher standard, drop me a line and we’ll have a candid and honest conversation.