3 Easy Steps To Create Your Own Advisor Fiduciary Rule

It shouldn’t take a law to get an advisor to put your best interests first.

Reviewed by: Beth Pinsker
Edited by: Beth Pinsker

New York (Reuters) – Tired of the on-again/off-again tease of a government rule that would make financial advisors act in your best interests? No need to wait.

You have all the tools you need right now to enforce your own fiduciary rule, simply by asking the right questions at the right time and voting with your feet.

The system that guides financial advice was supposed to change in April, when a long-debated set of instructions from the U.S. Labor Department to financial advisors finally became active.

These rules require any professional dispensing investment advice on retirement accounts to be what is known as a fiduciary, acting in a client's best interests instead of choosing the option that earns the most in commissions or fees.

New Rule In Limbo

Based on a memorandum that U.S. President Donald Trump signed two weeks ago, that process is now up in the air. The April start date might happen, a new rule might be offered, or we could just continue with the status quo.

The way it works today is that some financial advisors are fiduciaries and some are not, and often it is hard to tell the difference. An independent financial advisor with a certified financial planner designation? Yes, a fiduciary, by definition.

The person at your bank who tells you what funds to buy with your yearly IRA allocation? Probably not. The clerk at the call center for your 401(k)? It depends.

If the idea of unconflicted investment advice sounds good to you, then these are the key steps to follow to make sure you get it:

1. Know Your Advisor

Small investors do not often think it is worth their time or money to hire an investment advisor and develop a relationship (and neither do many advisors). But you can get to know an advisor quickly.

First question: Are you a fiduciary?


If the answer is no, ask more questions about the person's credentials, the fee structure and how else they earn their money. You especially need to know if they get commissions for pushing certain products like a specific family of mutual funds.

"Some people might not realize there are campaigns going on to sell certain mutual funds. It could mean a trip, or some perk of some sort. It’s like a hidden compensation thing," says Trisha Brambley, CEO of Retirement Playbook.

You can check out an individual advisor's records on BrokerCheck, run by the financial regulatory agency Finra.

Another tip: If you are over 59-1/2 and can take money out of retirement accounts without penalty, an advisor might try to steer you toward investing that money privately rather than keeping it in a 401(k). That broker may just be looking to boost his or her commissions, warns Brambley.

2. Know The Fees

Fees have gotten more transparent in recent years, with the numbers showing up on your annual statements, but there is still a lot that people miss.

"Unlike any other service, you don’t pay a check for it," says Mitch Tuchman, CEO of Rebalance IRA, a low-fee investment advisor.

If people got invoices yearly from a mutual fund company for thousands of dollars, they would ask more questions. But instead, the fees get sucked out in tiny increments every day, and while you never see it, it can add up.

Tuchman's company recently advised a client in his 60s who had $400,000 in an account at a large bank. He was paying 2.7% in fees, which amounted to about $10,800 a year. The client needed to be shown these hard numbers in order to see that putting his money in low-cost index funds, with fees at 0.60% or about $2,800 a year, was a much better deal.

3. Vote With Your Feet

The easiest step: If you want a fiduciary, get a fiduciary. It does not have to be more expensive or inconvenient. It is just a choice.

No matter what happens with the fiduciary rule and its implementation, the option to hire one exists. You can even ask a nonfiduciary to sign a fiduciary pledge, although some will not be able to because of their employer's restrictions.

"Consumers just need to be aware," says Tuchman. "Anyone smart enough to save some money is smart enough to ask the right questions."