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The White House’s report on conflicting financial advice estimates that there is a staggering $1.7 trillion invested in products that generate conflicts of interest for advisors—meaning products that advisors earn a commission for selling to clients—leading to a loss of 12% in a retirement account’s value over 30 years.
To combat this, the Department of Labor is enacting a new rule requiring advisors to be held to a fiduciary standard, meaning they need to always act in your (the client’s) best interest.
If an advisor still desires to sell conflicted products, they will be required to have you sign a Best Interest Contract Exemption (BICE). This contract also gives you the right to partake in a class-action suit against your advisor if the conflicted product is not ultimately in your best interest.
What to Ask Before the Switch
If you employ a traditional financial advisor who was not previously bound to a fiduciary standard, there is a very good chance your money is part of the $1.7 trillion losing returns because of conflicted advice. And when your advisor comes to you to “repaper”, i.e. have you sign a BICE or any other paperwork related to their switch to a fiduciary, you should find out how much your advisor was making from commissions on products that may not have been in your best interest.
Traditional advisors are worried about you saying, “hold on a second” when they begin compliance with the fiduciary rule. During the campaign against the DoL rule, Paul Reilly, CEO of traditional financial advisory company Raymond James, encouraged Raymond James employees to go on record opposing the fiduciary standard. Additionally, if an advisor is planning to transition, many are scrambling to do so before November 11th, after which FINRA will notify all of their clients of the transition and encourage clients to ask what it means for them financially.
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Now that the fiduciary rule is going into effect, firms like Raymond James are sweating the switch to fee-only fiduciary accounts and increased oversight of their activities by regulators.
Make sure you’re prepared for that conversation with your advisor by reading my previous article, 6 Questions to Ask Your Financial Advisor. If you learn that you are one of the many, many investors losing 12% due to conflicted advice and want to work with an advisor who will work only in your best interest, you may want to schedule an appointment with an advisor that doesn’t have such conflicts.