Now the Pope is involved.

Yes, Pope Francis. Just last week the Vatican in Rome issued a bulletin in which Pope Francis took aim at the financial services industry. His broad topic was how financial advisers manage the “savings” of their clients. By “savings” it was taken to mean the savings, investments and accounts of clients. His Holiness even used the word fiduciary criticizing “advisers who failed to act as a fiduciary by not avoiding conflicts of interest and not working as a prudent professional”.^

Isn’t that what it is all about? That a client can TRUST that their financial adviser is truly acting in the best interests of his or her clients? Unfortunately with the current legal framework for financial services (which has existed in similar form for decades for banks, brokerages, insurance companies and Registered Investment Advisors, or RIAs*), individuals who work for brokerages and banks are NOT legally obligated to act in the best interests of the client all of the time. However, those who work for or are associated with Registered Investment Advisors ARE legally obligated to act as fiduciaries, meaning acting in the best interests of clients, all of the time.

What does this hot topic mean to you? And why is the topic so “hot“?

The topic is “hot” because the actual Fiduciary Rule is in the process of being re-written by the Securities and Exchange Commission (SEC), partly in conjunction with the financial services industry, in an attempt to be as broadly applicable as possible — and to protect as many investors as possible. Again unfortunately, there are numerous special interests of financial firms that will be negatively affected and this fact has created big delays in issuing an all-encompassing Fiduciary Rule.

This is where I step up on my soapbox because I am really, really passionate about this issue. The reason this matters to YOU, the client (or potential client), is that for years and years nice, smart financial advisers have been managing the financial affairs of nice, hard-working people like you — and your families. And YOU the client have been mostly happy with the advice and guidance you have received — and if you haven’t been pleased then you have switched to a new adviser in whom you place your trust. In many cases, the advice may have worked out “great” for you (for example: insurance policies, stock and bond selections, real estate, programs, platforms, etc.). AND– in many cases that same advice has NOT been in your best interests.

You may not have even cared! Because the adviser was a friend or referred by a trusted friend or colleague. Or maybe your adviser has been your adviser for your whole life! In many cases, the adviser WAS AND IS mostly working in your best interests but their FIRM is not. In some cases, the adviser AND the firm are not truly working truly in your best interests. Where this matters is costs. Costs of that “great” advice that worked out (or didn’t). Where this also matters is in how and how much the adviser was and is compensated for the financial advice they give. Herein lies part of the core of the matter.

The topic of “fiduciary duty” and what the Pope refers to as “not avoiding conflicts of interest” could not be more important to your personal financial life. Costs and transparency matter. Firms like Vanguard and Dimensional Fund Advisers were founded on this principle (and many or all of their investments are NOT offered at most brokerages and banks but ARE at RIAs). If an excellent investment can be offered for a lesser cost, then a fiduciary is required to recommend that cheaper investment (and if not, then to disclose why not)! If a similar “excellent” investment is offered to you — but is more expensive because a brokerage or a bank chooses to be compensated for its “distribution capabilities” — then that investment IS NOT IN YOUR BEST INTERESTS and that fact needs to be disclosed to you (but is mostly not).

Is this too much for a Friday morning on a Holiday weekend? To that end, this topic will be part of a series. Please give me your thoughts and questions — good and bad — so you can be the educated consumer you deserve to be.

^ Related article written by Bruce Kelly and appeared in InvestmentNews. Used with permission from the author.

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