Question: What is a Fiduciary and what does the Fiduciary Rule mean for Investors?

A Fiduciary is an investment advisor who works only for the investor and always provides advice that is in the investor’s best interest.  In the past, the conventional broker model has worked to avoid the responsibility of being a Fiduciary.  Many offering investment advice work under a rule that says the advice must only be Suitable.  That is a much weaker standard than the Fiduciary Standard.  Now, the old way is not an option.  Anyone providing advice or recommendations to an investor about a retirement account such as an IRA or 401k will take on the role of a Fiduciary.

This new regulation went into effect on June 9, 2017, and it is referred to as the Fiduciary Rule.  This new rule establishes a Prudent Expert Standard of Care.  Advisors must provide the advice that a Prudent Expert would give under the same circumstances.  In the simplest terms it means that the advisor must act in the best interest of the investor – another way to say it is the advisor must put the investor’s interest ahead of his own.

This requires that:

  • Compensation be fully disclosed and be reasonable.
  • Any conflict of interest must be fully disclosed
  • Advice should be individualized and customized to the investor’s need.

The biggest change is likely to involve 401k plan rollovers to IRA accounts.  Anyone recommending that you roll over your 401k plan to an IRA must demonstrate that it is in your best interest to do that and fully disclose all pertinent facts when making this recommendation.

Guelich Capital is a Registered Investment Advisor (RIA), and has always been held to the Fiduciary Standard so this level of care is not new to us.  RIAs work in a conflict free business model where our only loyalty is to our clients. We fully disclose compensation, we offer no proprietary products to remove any conflicts of interest and we design customized strategies to meet our clients’ needs.

 

 

Written by Connie C. Guelich, CFP, AEP, CLU, ChFC.  This represents our view at the time of this writing and is subject to change.  This is not intended to be personal investment advice.   If you would like to discuss your own account, please don’t hesitate to call us.  We are here to help and welcome your call.

Leave a Reply