President Obama announced this week that the Department of Labor will “crack down on Wall Street,” leading to a requirement that all retirement advisers be held to the fiduciary standard, which essentially requires them to put their clients’ financial interests before their own. This proposed change could save Americans who use an adviser for retirement investments thousands of dollars in the course of their working lives. Harold Evensky is a certified financial planner (CFP) and professor of practice in Texas Tech University’s nationally recognized Department of Personal Financial Planning. He is chairman of Evensky & Katz/Foldes Financial Wealth Management in Miami and is on the Committee for the Fiduciary Standard, which has been working for this change. He has been chairman of the CFP Board of Governors and a member of the International CFP Council, TIAA-CREF Institute Investment Advisory Board, IAFP National Board and has been published in multiple financial planning journals. ExpertHarold Evensky, personal financial planning professor, (806) 834-5042 or H[email protected]**Email is better for initial contact** Talking PointsMost investors believe regulations require their retirement adviser to put their best interests in mind, but this isn’t always true. Investment advisers are required to place the client’s interests first and eliminate possible conflicts of interest, according to the Investment Advisor Act of 1940.
Brokers, however, are monitored by the Financial Industry Regulatory Authority (FINRA), an independent securities regulator. FINRA requires only that the broker-dealer reasonably believes any recommendations made are suitable for the client and his specific situation. Often the difference isn’t clear to average investors.
The debate in Washington centers around holding all retirement advisers, whether brokers or investment advisers, to the same standards: appropriately handling possible conflicts of interest and putting investors’ interests first. President Obama’s direction to the Labor Department would do this. “Many investors believe all brokers and advisers are required to place the investor’s interest first. That’s not always the case.”
“There’s an important distinction in terms of loyalty; a broker’s loyalty is actually to the broker-dealer he works for, not necessarily the client.”