Whether you've been working with an investment planner for years or are just starting the process of finding someone to work with, you know how important trust is to the relationship. You want to work with someone who has your best interests in mind. You may have heard the terms 'fiduciary' and 'fiduciary responsibility' bandied about by planners. Here's what you need to know.
What's a Fiduciary?
Recent legislation proposed by the Department of Labor and passed by Congress requires that investment advisors who advise clients on their individual retirement accounts be fiduciaries. This regulation will take effect in September 2017.
According to the Department of Labor, a fiduciary must "act impartially and provide advice that is in their clients' best interest." Anyone who gives investment advice for a fee is subject to this rule.
Shouldn't Planners Always Act in the Client's Best Interest?
Of course, and most do. If you have a 401k plan or a pension plan at work, the person who manages that plan has always been required to act as a fiduciary. Until now, however, this requirement was not spelled out for Individual Retirement Accounts, or IRAs.
Do I Have to Find a New Investment Planner?
You can keep your current investment planner and, unless something else has changed, you should. Chances are, if you're happy with your planner, they've been acting in your best interest all along.
One change you may notice is that your investment planner may ask you to sign a contract with them, or they may send you a notice that outlines the rule and the planner's obligations. The notice may be a 'negative consent' notice, meaning that you don't need to respond to it if you agree with its terms.
Will My Investments Still Be Insured?
The fiduciary rule does not affect any protections that your investments currently enjoy. If you have money invested in an FDIC-insured account at a bank or other financial institution, that insurance won't change. Likewise, there is no additional protection for any investments in the stock market that are subject to market fluctuations and may lose value.
The Department of Labor's fiduciary rule only requires that your financial planner provide you with advice that is in your best interest rather than solely in their own best interest. It's designed to protect your retirement savings from advice that would enrich the advisor to the detriment of your hard-earned savings. Contact a company like Family Financial Partners to learn more.