By LouAnn Schulfer, AWMA®, AIF® Accredited Wealth Management AdvisorSM Accredited Investment Fiduciary®
“The only constant is change” — Heraclitus, Greek philosopher. Isn’t it interesting that this quote dates back to approximately 500 BC? Heraclitus created doctrines about the constant change and flux of life. Many people don’t like change and often resist it. Attitude toward a particular change is an obvious indicator of one’s stance on the issue.
“May you live in interesting times.” I couldn’t find consensus as to the origin of this quote, but you’d agree with me that we are certainly living in interesting times! A new White House administration, the UK’s surprising vote in 2016 to leave the European Union, the DOL Fiduciary Rule; there are opinions across the spectrum on whether each of these are good changes or not. With any big change, there is complexity and we’ll likely have some positive outcomes and some unintended consequences.
For Financial Advisors and Investors, change has been needed for a long time. Ironically, there has not been a regulatory agency who has authority over all persons who call themselves Financial Advisors or even give financial advice to others. In fact, there is not a uniform set of standards, education, credentials or licensing for one to call himself or herself a Financial Advisor like there are, for example, attorneys or doctors. Worse yet, the regulatory authority of an agency only reaches to those who hold the specific licensing from that agency. For example, FINRA, the Financial Industry Regulatory Authority, oversees the people and firms that sell stocks, bonds, mutual funds and other securities.
Therefore, if someone is “advising” you to purchase an “investment” and they do not hold a securities license that FINRA oversees, FINRA has no authority whatsoever over that transaction.* To complicate matters even more, it’s been common practice for some to hold a limited securities license such as a series 65 or a series 66 along with a life insurance license and market themselves a Fiduciary.
While it is true that when exercising an investment such as an advisory account, they must act in a fiduciary capacity because they hold the 65 or 66, if they choose to sell an insurance based product such as certain annuities, they do not have to act in a fiduciary capacity in that transaction and they are not mandated to tell you when they are acting in your best interest as a fiduciary or when they are not. Essentially, they can change their colors from investment to investment without any disclosure to you whatsoever. Yes, it’s very confusing, unfair and ultimately can be twisted to be deceptive to the customer.
A couple of years ago, the Department of Labor was chosen to be the agency to create a Fiduciary Rule. Since the majority of middle class investors’ money is held in retirement accounts which come from the fruits of our labor, the DOL can reach across anyone delivering advice, recommending or selling investments in retirement accounts. The new rules had been scheduled to take effect in April of 2017. The intent of the rule is to have anyone who is working with another person’s retirement accounts act as a Fiduciary.
While this sounds straightforward, there is a lot of complexity that continues to be worked on by our government and firms who deliver investments and investment advice. This change is needed, but a hole remains. The obvious outstanding issue is, what about non-retirement accounts? Currently the rule only has jurisdiction over retirement accounts such as IRA’s and 401(k)’s.
Getting a gauge about your advisor’s attitude toward the rule can be very revealing as to how they serve you. Some questions to ask may be:
· “How do you feel about the DOL’s Fiduciary Rule?” — listen for a positive attitude about the change. You may be wary of anyone who dismisses the change or who is opposed to the impending new rules.
· “How has your firm been preparing for implementation of the DOL ruling?” — what is being done on the back end to help your advisor work within a level playing field and address conflicts of interest?
· “How will this rule affect my account?” — we’ve had inquiries at our office from people whose advisors have told them things that simply are not true, such as that they will no longer be able to hold stock in their retirement accounts because of the government. If you are told something that simply does not seem right, seek a second opinion.
· “If the DOL ruling is delayed, will your firm still move forward with policies and tools in the spirit of the rule? If so, when will the changes be implemented?” — Major firms are indicating they are moving forward regardless of the official timing of the rule. For many, some changes have already been made. If a firm is waiting until they are forced to change by law, that may be a red flag.
We are living in interesting times, and the only constant is change. Maybe those statements have resonated throughout time for good reason.
* FINRA’s broker-check (brokercheck.finra.org) will tell you whether or not an individual has securities licenses registered with FINRA, which securities licenses they hold, their employment history, and if there are complaints or disclosure events in their background such as litigation or even bankruptcy.
(Author’s note: Due to industry regulations, I am prohibited from responding to any online comments. I welcome you to contact me via e-mail: firstname.lastname@example.org).
LouAnn Schulfer is co-owner of Schulfer & Associates, LLC Financial Professionals and can be reached at (715) 343-9600 or email@example.com. www.SchulferAndAssociates.com
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC. Accredited Wealth Management Advisor SM and AWMA® are trademarks or registered service marks of the College for Financial Planning in the United States and/or other countries. The Accredited Investment Fiduciary® designation is earned through the Center for Fiduciary Studies.