What is Fiduciary Responsibility?

August 20, 2015 — 401K, Brokers, fiduciary responsibility, finances, money

Americans are not financially literate as a group. The depressing collapse of the markets in 2008 followed by a bank bail out has left the country with gross inequity.  Working folks with real estate holdings, retirement plans and other investments took big hits while the banks returned to business as usual.  Regulations designed to curb the abuses of financial institutions, like Dodd/Frank have not been implemented.  We are still in a situation dominated by lenders, bankers, and mortgage brokers.  Stock brokers have been able to operate under an assumption that suitable, reasonable investments were the only offers made to clients.  In reality any system that is commission based encourages transactions.  The broker makes a cut from each trade, and wants to maximize the client’s contribution to his total commission.  His company also rewards him for selling in house products by offering a higher commission for the sale than competitive products may have.  The client becomes the least of the broker’s concern within this structure.

I switched to a fiduciary to manage my investments years ago. I am much more secure and happy with my portfolio since I made the change.  I worked with brokers from different brokerages in the past, but never found one with my interests in mind.  There is a simple reason for that.  The rewards were structured against my financial well being and in favor of trades to create commission.  Now I split the profits with my fiduciary firm, which works perfectly.  I make as much money as they make.  If they make nothing for me I pay them nothing.  This incentive to make good decisions for both of us carries weight and works like a charm.  I do discuss the strategy a few times a year to make sure we are on the same page, but my involvement is very light.  We are in the same financial boat which makes me feel happy.

Brokerages are starting to lobby the public with misleading ads about this new proposed regulation.  I urge you to take some time to understand the issues.  Brokers pretend that fiduciary responsibility to you will somehow cut you off from good advice.  What it will do is make it illegal to sell you products that are not the best investment or the best deal in terms of fees for your situation.  This is a protection Americans need to stay financially stable into retirement. Caveat emptor, gentle reader.