Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Now Is the Time for the Fiduciary Standard

When you work with a financial advisor, you want someone who will put your best interests first. Yet all too often, brokers and other advisors have to wrestle with other factors that affect their own financial interests, and the net result is that clients don't always get the treatment they deserve. Imposing a fiduciary standard on all investment professionals would ensure that you actually receive the unbiased advice that most customers already think they're getting.

The Institute for the Fiduciary Standard is a relatively young organization, formed two years ago to help further the cause of forcing investment professionals to follow key fiduciary duties. That cause is one that the Motley Fool has repeatedly advocated, and the Institute believes that now is a key time to move forward with the fiduciary standard, dubbing this month "Fiduciary September."

What a fiduciary standard means
To understand what the fiduciary standard means, you have to look at the fiduciary duties that some professionals already must follow. Fiduciaries must serve the client's best interests, acting in good faith and prudently with the knowledge and judgment of an investment professional. They must also avoid conflicts of interest and disclose any facts that are material to their relationship with their clients, and they need to work to rein in costs and avoid unnecessary expenses.

That might not sound all that controversial, but the brokerage industry doesn't agree. It points to its other business lines -- e.g., underwriting stock and bond offerings and giving companies strategic advice -- as potentially running afoul of the fiduciary standard. Moreover, some brokerage firms argue that only by having investment offerings with relatively high built-in costs can they afford to serve small customers with modest amounts to invest. They say that a fiduciary standard would force them to abandon millions of potential customers that they could otherwise serve under current, more lenient standards.

Why now is the time
The Institute says now is a key time for the fiduciary standard because two key proposals concerning the legal definition of "investment advice" are currently up for review. Both the SEC and the Department of Labor, which oversees regulations governing the handling of retirement accounts, are considering proposals that could potentially implement elements of the fiduciary standard on investment professionals advising clients.

Institute President Knut Rostad also points out that the public already has extremely negative views of the biggest financial companies in the country. He cites a Harris Poll from earlier this year that found that Goldman Sachs (NYSE: GS  ) had the second-worst reputation of the 60 "most-visible companies," while Bank of America (NYSE: BAC  ) came in third-worst. Rivals JPMorgan Chase (NYSE: JPM  ) and Citigroup (NYSE: C  ) were also among the six lowest-ranked companies in the poll. Given those opinions, public support for further regulation seems almost guaranteed.

Another reason why timing is critical is that turnover within the SEC has put two new commissioners and new chair Mary Jo White on the board of five. Given the Department of Labor's efforts to move forward and the clear interest in having the same regulatory framework apply both to retirement and nonretirement accounts, coordinating SEC and DoL efforts will be crucial.

Get the standard you deserve
Already, plenty of investment professionals work under a fiduciary standard, giving advice that's in the best interest of their clients without sacrificing their own livelihood. Expecting the fiduciary standard to become the industry standard for investment advice is not only reasonable, but crucial to ensure that unscrupulous professionals don't take advantage of unsuspecting clients for their own personal gain.

Fear of being taken advantage of by brokers and other professionals has led millions of Americans to wait on the sidelines since the market meltdown in 2008 and 2009. Yet those who have stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.

Tune in to for Dan's regular columns on retirement, investing, and personal finance. You can follow him on Twitter @DanCaplinger.

Read/Post Comments (5) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 04, 2013, at 9:39 PM, constructive wrote:

    Do the TMF newsletter services have a fiduciary duty to their customers?

  • Report this Comment On September 04, 2013, at 10:47 PM, neamakri wrote:

    " They say that a fiduciary standard would force them to abandon millions of potential customers that they could otherwise serve under current, more lenient standards."

    In other words, they are NOT CURRENTLY serving these customers in their best interests. That is quite an admission of guilt.

  • Report this Comment On September 05, 2013, at 1:36 PM, dondysert wrote:

    My wife and I are Realtors and we have a fiduciary duty to our clients, which we take this very seriously. The problem is, if you have an agent that is dishonest, all of the fiduciary duties in the world is not going to suddenly make that agent a champion for good and honesty towards his clients.

  • Report this Comment On September 05, 2013, at 6:53 PM, markpthecfp wrote:

    Realtor is correct that having the fiduciary duty will not force a person to be honest, but placing that duty upon them at least makes them accountable. if you are handling other people's money and guiding their financial future, you should be required by our financial regulatory system to put their interest above your own [a.k.a., fiduciary].

  • Report this Comment On September 14, 2013, at 9:38 PM, Jamazoa wrote:

    My financial advisor is a Fiduciary company.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2621416, ~/Articles/ArticleHandler.aspx, 10/27/2016 5:15:38 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 7 hours ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:00 PM
BAC $16.87 Up +0.15 +0.90%
Bank of America CAPS Rating: ****
C $50.01 Up +0.42 +0.85%
Citigroup CAPS Rating: ***
GS $177.07 Up +1.52 +0.87%
Goldman Sachs CAPS Rating: ***
JPM $69.13 Up +0.33 +0.48%
JPMorgan Chase CAPS Rating: ****