Financial Strategies

Rule is reminder that consumers need to pay attention to titles

Column by Patricia Kummer
Posted 9/19/17

The new Department of Labor (DOL) rule, also called the Fiduciary Rule, has created a bit of confusion for investors. It also threw many brokerage firms into a tumult over revamping procedures under the new regulation. The intent of the rule is very …

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Financial Strategies

Rule is reminder that consumers need to pay attention to titles

Posted

The new Department of Labor (DOL) rule, also called the Fiduciary Rule, has created a bit of confusion for investors. It also threw many brokerage firms into a tumult over revamping procedures under the new regulation. The intent of the rule is very good, but getting everyone who overlaps with the financial services industry on the same page is a major undertaking. Hence the implementation of the rule has been delayed again.

The DOL Fiduciary Rule simply states something the Securities and Exchange Commission (SEC) has always required: That advisors must put their clients’ interests before their own. Yet consumers may not know the difference between a fiduciary who is paid as an advisor or a broker who is paid for products. There may be significant differences between working with an independently registered firm (with the SEC) versus a bank or insurance company where their business does not fall under investment regulation.

One quick way for the consumer to seek advisors who are fiduciaries is to ask for their ADV. This is the Advisory document required by the SEC each year for independent advisors. When a firm has submitted an ADV it tells you several things. First, that they must be a fiduciary since the SEC requires this of all financial planners and advisors who are independently registered with them. Independent registration may provide more objective advice as opposed to falling under a brokerage umbrella.

Secondly, the ADV will clearly state how an advisor manages money, charges fees, discloses conflicts of interest and provides research and advice. Whatever the advisor puts in their ADV is now auditable by the regulators, so advisors take this very seriously.

One major difference between the two fiduciary rules is that the DOL only covers retirement plans, such as 401(k) plans and IRAs. Independent Registered Investment Advisors adopt the fiduciary standard on all investments and advice. Here are five simple questions that are all answered in the ADV that you can use to evaluate your advisor.

1. What education, certification and experience do you have? Most certifications such as the Certified Financial Planner ® designation have minimum education and experience requirements as well as a Code of Ethics.

2. How are investment recommendations selected? Make sure there is an independent analysis prior to investing such as a financial plan or Investment Policy. It is important that all financial needs are viewed holistically including taxes, estates, retirement and risk and income needs. Make sure the investment choices are not synonymous with the name on the letterhead. Independent research should provide you more custom portfolio design.

3. What are your conflicts of interest? This should include any sponsorship or company affiliations that impact how an advisor is compensated beyond your fees.

4. What are your fees? This should include how they are calculated and reported.

5. What does the long-term relationship look like? You should expect to have ongoing reviews available to you and to be encouraged to update your financial plan and ask questions at any time. This includes progress reports and adjustments as needed including tax law changes, market fluctuations and economic updates in addition to your own individual needs as they change.

In summary, you don’t have to worry about the DOL rule and when and if it is ever implemented if your advisor is a Certified Financial Planner® and Registered Investment Advisor. Both the Board of Certified Financial Planners and the SEC hold fiduciary standards and professional code of conduct as minimum requirements for their advisors. And you should too.

Patricia Kummer has been an independent Certified Financial Planner for 31 years and is president of Kummer Financial Strategies Inc., a Registered Investment Advisor in Highlands Ranch. Kummer Financial Strategies Inc. is a seven-year 5280 Top Advisor. Please visit www.kummerfinancial.com for more information. Any material discussed is meant for informational purposes only and not a substitute for individual advice.

Patricia Kummer

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