Advisors Are Mulling a Career Change Because of Fiduciary Guidelines

A couple weeks ago I talked about how the new DOL fiduciary rules are mostly an industry worry at this point since most outside observers aren’t paying attention to this stuff or don’t know that it exists in the first place.

After all, why should there have to be new legislation in place that forces those in the financial services industry to put the best interests of their clients first when offering financial advice? I’m sure most people outside the world of finance would assume this has always been the case.

It hasn’t, but it appears that these new rules could do some good in shaking out the bad apples in the financial advisor space.

Think Advisor recently posted the results from a Fidelity study of nearly 500 advisors, both large and small, and found some interesting outcomes from these new rules:

In the blind online poll, conducted August 18-26, 29% of advisors surveyed said they expect the DOL rule to have a positive impact, compared to only 12% in the previous survey that had a similar sampling of 489 advisors conducted in January, before the final DOL rule was released.

However, 10% of the advisors in the most recent survey said they are planning to leave or retire from the field earlier than they expected because of the rule, while another 18% said they are “reconsidering their careers as advisors.” Those numbers are even more startling considering the average age of survey respondents was 46.

So there are nearly as many advisors in this group who plan on leaving, retiring or reconsidering their careers altogether as there are advisors who view these fiduciary rules positively.

To which my reply would be — good riddance.

If you have a hard time looking out in the best interests of your clients then you don’t deserve to be managing money for other people or providing financial advice in the first place. The people who leave or retire early because of these new rule changes were probably never truly advisors to begin with — they were likely glorified salespeople.

I get that change is never easy and that most people in the financial industry have a poor view of any regulations. There are certainly going to be some growing pains with these new rules, so firms and individuals are going to have to adjust. And I’m sure there will be unintended consequences of the fiduciary rules and firms who will figure out ways around them. But it can’t be a bad thing that the financial governing bodies are finally trying to put the interests of the client first when it comes to conflicts of interest.

It is worth noting, however, that anyone who is providing you with a service is biased or conflicted in some way. How could they not be biased towards their own way of doing things when that’s how they make a living? What financial consumers have to look for is those firms or individuals who are completely open and honest about those conflicts up front.

Since most people are unaware or ill-informed about the fiduciary guidelines, here are a few simple questions to ask of your current or prospective financial advisor to see how transparent they are with their conflicts:

  • How are you paid?
  • Who else is paying you?
  • Do you earn commissions or bonuses based on the products you are pitching to me?
  • How do you choose which investment products to recommend?
  • Do you have any business relationships with any outside financial firms?

The goal here is not necessarily to rule someone out simply because of how they answer these questions. What you’re looking for is transparency. A lack of transparency is a huge red flag. Here are a few other red flags to look for in the financial services industry:

  • Constantly selling past performance instead of process.
  • Constantly pushing financial products instead of providing financial advice.
  • Placing you in highly-priced, in-house funds or strategies when similar lower-cost options are available.
  • Offering financial solutions before getting to know you and your unique circumstances.

Life would be a whole lot easier for those looking for a trusted source of financial advice if there was a simple rule, title or designation could let them know exactly who to work with and who to avoid. In the absence of that perfect world scenario, a good way to understand who is sitting on the other side of the table is to see how transparent they are and how they handle your personal situation.

DOL Fiduciary Has Many Advisors Mulling Career Change: Fidelity Survey (Think Advisor)

Further Reading:
The Impact of the Fiduciary Standard on the Financial Industry


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