Last month, the Labor Department announced new rules regarding retirement savings accounts. My opinion on the matter is straightforward: All advisers, planners, brokers and agents working with investment clients should adhere to the fiduciary standard. I’ll put things even more bluntly: Any financial professional who is being paid for personalized investment advice—regardless if it is on a fee or a commission basis, directly or indirectly—should adhere to the fiduciary standard.

When an investor works with a financial professional, the expectation on the part of the investor is that the guidance given will be to his or her benefit, not to the benefit of the professional’s wallet. Many times this is the case, but too often it is not. Individual investors are pitched high-priced investment products when lower-cost and more appropriate products are available. This practice needs to stop. Those who cannot make a living without pitching high-commission products should reexamine their business models.

There are many in the industry who make a nice living by doing good for the clients. Registered investment advisors (RIAs) are required to follow the fiduciary standard. All holders of the Chartered Financial Analyst (CFA) designation are required to “act for the benefit” of clients and place client interests before their employer’s or their own interests. Certified financial planners (CFPs) must abide by a fiduciary standard defined by the CFP board. Many others in the financial industry try to do what’s right for their clients. Those who act in their client’s best interests should be lauded for doing the right thing.

Unfortunately, given the sheer size of the investment industry and the broader financial services industry, there are many professionals who put their personal compensation first. There are many others who are unconsciously influenced by their compensation plan, their employers and the product reps they interact with. Even when not overtly intentional, such actions are detrimental to their clients’ best interest.

As of press time, there is scuttlebutt about the Labor Department’s rule being challenged in court. Among the industry’s arguments against the rule is that small investors will no longer be able to get advice because it will now be too costly to provide it to them. I view this argument as disingenuous. The average IRA rollover was $96,660 and the average IRA balance for all accounts owned by the same person was $119,804 in 2013, according to Craig Copeland of the Employee Benefits Retirement Institute (EBRI Issue Brief, May 2015). Is the industry really worried about losing the investors with these account balances as clients? I doubt it. Such accounts are already too small for many brokers and annuity salespeople to focus on. Why spend many hours on a $75,000 account when the same amount of effort can be spent on a $750,000 account? It’s simple business economics, and the industry knows this.

I discuss the Labor Department’s new rule and what it means to you here. I’ll give a quick synopsis here: No rule is going to lock the bad apples out of the industry. It is still your job to do a thorough background check. Ask as many questions as necessary to ensure you fully understand the advice that is given and the logic behind it. Then go get a second opinion. It is your money that is at stake.

Even if you have no intention of working with a financial professional, keep your guard up. The day you retire or seek to roll over your 401(k) plan, you become a hot commodity in the eyes of the financial industry—especially if you have accumulated a significant amount of savings. Hold onto your wallet tightly, be willing to say “no” and hang up on unsolicited callers in mid-sentence, and realize that you always have the option of simply putting your money into an ultra-low-cost index fund instead of being rushed into a decision regarding any other alternative.

Wishing you prosperity, 

Charles Rotblut, CFA
Editor, AAII Journal
@CharlesRAAII