Explaining the role of fiduciaries to readers
The financial industry is abuzz with discussions about the Best Interest Rule, a potential replacement for the Obama-era Fiduciary Rule that was overturned in 2018. This rule, if implemented, could bring about significant changes in the way broker-dealers, particularly those who are members of FINRA, manage their clients' investments.
The Fiduciary Rule, issued by President Barack Obama in 2015, required all financial advisors to prioritise their clients' interests over their own. However, the Fifth Court of Appeals overturned this rule due to opposition from financial industries. Since then, watchdog agencies such as the Securities Exchange Commission have been considering a replacement, the Best Interest Rule.
The Best Interest Rule would require financial advisors to disclose any financial conflicts of interest and act in the best interest of their clients. This is particularly important for older Americans who often rely on investment brokers to manage their money, especially during retirement. Investing can be a gamble for some customers, and handling their money is a significant responsibility.
It's worth noting that not all financial advisors are required to be fiduciaries. This means that some investment brokers may not always act in the best interest of their customers. To ensure that you're working with a fiduciary, it's recommended that you ask them to pledge in writing that they will act in your best interest.
In the digital age, even online financial services require human workers. While these platforms have been reducing prices as they develop automated systems for managing investment portfolios, it's still crucial to be cautious about taking titles at face value. Some online services may not be as transparent as they seem, so it's important to do your research.
One way to find fee-only financial planners, who are generally fiduciaries, is by using recommended databases such as the National Association of Personal Financial Advisors, the Garrett Planning Network, the XY Planning Network, and the Financial Planning Association.
The debate over the Best Interest Rule is far from over. Some states, organisations, and businesses are asking judges to keep the case open in hopes of preserving the Fiduciary Rule. Asking fiduciaries about the future direction of the industry in terms of regulation, abuse, and fees can be insightful.
In conclusion, the Best Interest Rule, if implemented, could bring about a new era in financial advisory services, ensuring that clients' interests are always put first. As an investor, it's essential to stay informed and ask the right questions to ensure you're working with a financial advisor who will act in your best interest.
