No Fiduciary Rule to Protect Consumers

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This was the month that the Department of Labor’s “Fiduciary Rule” was supposed to be implemented. It was intended to require all financial advisers who work with retirees to always work in their best interests, and disclose any conflicts of interest.

This was before President Trump issued a memorandum in February to delay implementation until June 9. His excuse was that “it could hurt investors’ ability to access financial advice.” However, from an investor’s point of view, why would anyone want the advice of an adviser who isn’t working in their best interest? What it means for consumers is that the Fiduciary Rule will likely be watered down until it’s ineffective, or scrapped altogether.

At the same time, Trump is repealing the Dodd-Frank regulations that were designed to prevent a replay of the Great Recession of 2008 and 2009. That recession was caused by banks’ greed in selling subprime mortgages, and then packaging those mortgages as A-rated investments. When the house of cards collapsed, hundreds of thousands of Americans lost their homes, but not one banker went to jail. Trump is also dismantling the Consumer Financial Protection Bureau, a government agency that makes sure that banks, lenders and other financial companies treat you fairly. It’s clear that more than ever, investors have to do their own due diligence when seeking financial advice and investment management.

It’s important to note that all of the following refer to themselves as “financial advisers,” although they operate under different standards —

* A bank employee who is instructed to sell annuities that are expensive, and tie up an investor’s money for a long time.

* A wire house employee who only sells mutual funds from a particular company that their firm wants him to use, because they are particularly profitable for the firm.

* A registered representative for a broker dealer who makes recommendations to clients based on what compensates him the most, even though there are comparable investments that are lower-cost, and have a better performance history.

In anticipation of the Fiduciary Rule being implemented, some mutual fund companies have made changes to clean up their act. One fund company came out with “clean” funds. Compared to their old (I assume “dirty”) funds, the broker’s commission is not built-in to the fund, but tacked on as a separate item, making it easier for investors to know how much they’re paying for the fund, and how much the broker is making for selling the fund.

Another mutual fund company came out with T-shares, which carry a maximum 2.5% sales charge, which is about half the cost of their traditional funds. Even at this reduced price, they are still quite expensive.

The problem is that with the likely revocation of the Fiduciary Rule, there is little incentive for non-fiduciary financial advisers to recommend these new offerings. If you have a financial adviser, you can protect yourself by probing for conflicts of interest, and asking him or her the following questions —

* How are you paid?

* What is your criteria for recommending one investment over another?

* Are you committed to putting my interests first?

* Can I see your Form ADV? (This report discloses any regulatory problems as well as services and fees.)

If you want your adviser to make a solid commitment to act in your best interests, you can ask him or her to sign a fiduciary oath. The Committee for the Fiduciary Standard has prepared an oath that you can download at:

If you’re looking for a new financial adviser, seek one out who will act in your best interests. Registered Investment Adviser firms are held to a fiduciary standard. You can find them listed at the Security and Exchange Commission’s Investment Adviser Public Disclosure website:

Certified Financial Planners must also be fiduciaries in order to retain their credentials. You can find them listed at the Certified Financial Planner Board of Standards:

The commentary on this website reflects the personal opinions, viewpoints and analyses of Kondo Wealth Advisors, Inc. employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc. or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.