Wolves, Sheep’s Clothing and Fiduciary Financial Advice as published in InsidaNova.com
March 16, 2018—It’s a fact of life: Not all financial “advisors” are created equally. Regulators may do their best to protect you from the sheep-cloaked wolves of Wall Street, but “buyer beware” remains my advice.
Case in point: A few weeks ago, Massachusetts securities regulators charged discount brokerage firm Scottrade (now owned by TD Ameritrade) with violating its own codes of conduct by holding high-pressure sales contests when they promised they wouldn’t.
This real-life news perfectly illustrates two recent articles in this column, both of which are found at insights.alliantwealth.com. In “Don’t Fall for Investor Scare Tactics,” I warned of financial peddlers who stir up your trading tendencies by preying on your emotions. They may succeed in selling you financial products, but they are not serving your best financial interests.
In “ Better Investor Protections Have Finally Arrived, ” I wrote about the Department of Labor’s (DOL’s) Fiduciary Rule going into effect on June 9, 2017. The rule is meant to hold all advisors more accountable. At least when advising on company retirement plans (like 401(k) plans) or individual retirement plans (IRAs), it requires the advice to always be fiduciary, or in your highest financial interest.
While the federal government has not yet fully enforced the rule, it’s good to see states like Massachusetts step up. Citing the rule, they’ve said that brokers cannot write codes of conduct that say one thing about advising on retirement assets, and then encourage their agents to do something else – such as “target a client's ‘pain point’ and emotional vulnerability,” or use “emotion over logic in getting a client to bring additional assets to the firm.” I’m taking these quotes straight out of the regulator’s charge, which added: “These tactics do not represent the behavior of a fiduciary.”
These are promising steps, but until fiduciary advice is the full law of the land, note that Registered Investment Advisor firms are not brokers and have been held to the Fiduciary Standard since 1940. Even there, you still want to do your due diligence. Does your advisor shore up your rational resolve or play to your emotions? If the latter, beware. They may not be the sheep you thought they were.