Taking the Fog out of Fiduciary

What is a fiduciary? Is the Department of Labor acting in my best interest? Do I even need a fiduciary?

In my humble opinion the Department of Labor telling the financial services industry’s advisors at large to behave as fiduciaries is the second most ridiculous thing I’ve ever heard. For certain reasons, perhaps the most ridiculous thing is watching various factions within our industry actually argue against being a fiduciary. It sort of reminds me of the “Repeal and Replace Obamacare” fiasco. And in a close third place is the speculation that the DOL Fiduciary Rule will actually be canned. And my opinions on all of this are derived from my own personal experiences I will explain in my next piece. To be right up front, I am 100% biased. I think all humans are. My bias came from a personal and very painful experience and most likely so did yours. None of us need Uncle Sam or anyone else telling us what is right or what to believe. We all know what we know based on our experiences.

If I was a consumer, and I am, I would be scratching my head over this DOL Fiduciary Rule stuff, much like I do watching the news. News has become nothing more than commentary, opinion, hyperbole and massive fakeness all to attract attention. Regardless of which side of the political fence you are on, you constantly have to ask yourself whose agenda is being promoted. Does any of this have my family’s best interest in mind? Highly and certainly unlikely.

The same could be asked of the financial services industry. To paint the picture let me as an industry services professional of 13 years get in your shoes for a second. As I search for a trusted financial advisor, the first thing I’d ask is: “are you a bonafide fiduciary”? And these days he or she would most likely answer, “yes I am”. If the answer is what you know it will be then why ask? I cannot give away all the secrets here but this is perhaps the most important thing to get that financial services professional to document for you out loud.

Next question: “please define in clear terminology what a fiduciary means to you and why I even need one”. This one should take less than a nanosecond to begin the response to while maintaining constant eye contact with you. Oh, and the answer better be: 1) something you naturally agree with (the fiduciary approach may not be right for you if you can believe that; I explain more later.), and 2) something a 3rd grader could understand. And the final question for this phase of the interview: “show me your contract, what you as the advisor are committing yourself to if we form a relationship... I want to know precisely what I am getting for the fees I pay and/or other compensation you get as a result of me acquiring various financial and insurance products through you, and I want to know my exit options”. Again, this should take a matter of seconds to produce.

Sounds simple and logical to me! But here’s the thing, what the government defines as a fiduciary and what human nature defines as one may be two entirely different things. For example, a classic stock broker (you won’t find that title on a business card anymore) with a Series 7, and maybe a Series 6 and Series 63 license would not be called a fiduciary in legal terminology today. Why? Because they are brokering products like stocks and mutual funds for trade commissions, sales load commissions and 12b1 fees, certainly in their best interest, but one could argue that this could be in your best interest too. If you as the consumer don’t know what all this means, any of my advisors can teach you and your children at a level anyone can understand. The same is true for the insurance agent. They may carry a life and health license. And they might provide life insurance and annuity solutions for a commission. And this could be positively and absolutely what you need. Again, a very easy concept to explain and understand.

And get ready for this bombshell: I have personally seen and witnessed brokers (non-fiduciaries) behaving more like fiduciaries than actual legally-defined fiduciaries themselves. In other words, it isn’t the title. It isn’t what people who’ve never worked in this field say it is. It is the combination of behavior, experience, essence, service line-up, products and the fee structure that defines the type of fiduciary and fiduciary process you need. Too complicated to explain everything I am trying to convey here but you have to believe me since I am writing this and you have no other option at this point, right?

What is foggy to me is that suddenly any person offering any kind of financial advice, services or products to another person with an IRA must act in that person’s best interest and must provide a contract stating that is the case. Why isn't a client's best interest the default in the first place? And the advisor doesn’t have to sign the document – what??? Now the rule’s implementation is delayed until 2018, and may be gone forever who knows, but this is what’s being fought over like you wouldn’t believe.

Various groups within the financial services community are fighting against this. In my own personal view I don’t want the government telling me how to behave with respect to another individual’s financial decisions. Why not? It kills competition and makes life less interesting, something Russia or Venezuela might want, but not me. What I want is to hold myself out as a fiduciary on steroids and see if a person’s investment personality, experiences, belief system and so on matches up with what I offer. If so, we have an essence match and let’s do business. If not, let’s go find a broker or an online trading account. It is that simple. The broker is not bad. The fiduciary is not bad and the DIY angle is not bad. What is bad, in my view, is the force feeding of a singular process to all humans by a centrally-controlled mechanism. All humans are not the same (recall their experiences are not all identical) and nor should this one-size-fits-all approach by the Department of labor be either.

As a twist of fate, I will argue (next) how what the government is trying to do is actually doing some good.