By Linda Stern
WASHINGTON, July 10 The slowest-moving body in
Washington right now is not the Nationals' outfield but
regulators creating an ethical standard that would require
financial advisers to put their clients' interests first.
Maybe that doesn't sound like it should be so difficult,
but the idea of applying the so-called fiduciary standard to all
advisers, including brokers who earn commissions on the
securities they sell, has been under discussion since at least
the 1990s. In 2010 the Dodd-Frank financial reform legislation
asked the U.S. Securities and Exchange Commission to look into
Last week, the SEC closed its comment period on a request
for information about how a fiduciary rule would affect the
advice industry, and received a flurry of last-minute filings in
response. Industry insiders said devising a rule would be costly
and do a disservice to low- and middle-income clients. The
National Association of Insurance and Financial Advisers, which
represents insurance agents who also sell securities, told the
SEC that a fiduciary standard would "harm the ability of
middle-market investors to obtain financial services and
That's because good personalized financial advice isn't
cheap. Most independent advisers who are fiduciaries charge
their clients a percentage of the assets they manage for them.
Anyone with less than $250,000 in investable assets isn't that
attractive to a fee-only adviser. Those clients can get free or
inexpensive advice from brokers who sell products like mutual
funds and insurance policies, but in return those clients end up
investing in the products the brokers are being paid to push.
The SEC is trying to figure out the Catch-22 of giving
consumers the protection of fiduciary advice while allowing
"advisers" to earn commissions by selling products. Meanwhile,
long-shot legislation winding its way through the House of
Representatives would block the SEC from moving forward.
Even if that all gets solved and the SEC does write a rule,
folks looking for good financial advice still will face
challenges. One is affordability.
The other is the "fiduciary" title, which doesn't prove an
adviser is trustworthy. Bernard Madoff was a fiduciary. Most
recently, the chairman of the board that certifies financial
planners - the CFP Board of Standards - was censured for failing
to thoroughly disclose that he had an ownership stake in
brokerage and insurance subsidiaries of a company he worked for.
So if you need help managing your money, you can't just wait
for the SEC to act, or trust that the current certification
system works perfectly. Here's how to protect yourself.
-- Prepare to pay. If you are getting your financial advice
for free, you are not getting an adviser who is putting your
needs above his own or those of his company. Smart and
unconflicted financial advice is worth something, so get used to
paying for it if you aren't willing or able to manage your
investments for yourself.
-- Look for the term "fiduciary planner." Until Washington
waters it down, it means the adviser has to make sure your
investments are the best possible investments for you. It is a
-- Don't read too much into the term "fee-based." All it
really means is "I charge fees." Ask your adviser to detail
those fees, and how else she will make money on you. What makes
up her total compensation?
-- Pay in proportion to your needs. If you are wealthy and
have a complicated financial life, complete with
multi-generational transfers, a family business and estate
planning issues, you can easily pay tens of thousands of dollars
for smart legal and financial advice. If you have half a million
dollars that you want invested for you, expect to pay 1 percent
or more of assets for that guidance and service. The lower your
total assets, the higher percentage advisers typically charge,
and advisory fees vary. If all you want is some help deciding
where to put your 401(k), there are cheaper alternatives.
-- Consider limited advice for limited situations. The
Garrett Planning Network ()specializes
in fiduciary advisers that charge by the hour for solving
simple questions, like "should I pay off the mortgage or invest
in a Roth IRA?" For basic investment advice, don't discount the
new breed of automated help from websites like Betterment,
Wealthfront, Hedgeable and Covester. They recommend sensible and
mainstream asset allocations and low-cost investments at a
fraction of the cost of an actual person.
- Keep your money safe. Regardless of where you get your
advice, make sure your assets are held in a bona fide brokerage
account insured by the Securities Investor Protection
Corporation. That will prevent the big rip-off - an adviser who
poses as a fiduciary but steals everything you have.