I'm always on the lookout for articles that create transparency for investors. This article by Dan Solin of The Huffington Post discusses one hot topic in our profession: the fiduciary standard for retirement plans.
In its simplest terms, the fiduciary standard requires certain investment professionals to place their clients' interests above their own. Registered investment advisors (such as my firm) must adhere to these standards. However, stockbrokers are not required to do so, a fact which the average consumer does not often realize.
With fiduciary standards, a client can expect completely fair and impartial advice throughout the investment process. Brokers, on the other hand, must only recommend investments that are “suitable” for your goals. Their recommendations may contain hidden conflicts of interest, which can lead to higher compensation for the broker (and his firm) and lower investment results for you.
The US Department of Labor is considering a proposal that requires firms that manage retirement assets to act as fiduciaries. Brokerage firms are opposed to this because it will change their compensation structure and require greater transparency with their clients, thus hurting their profitability.
To us, the real issue is that investors often have no idea whether their brokerage firm is acting as a fiduciary. One solution is to require firms that are not fiduciaries to plainly disclose it to investors. Because this is akin to the cancer warning on cigarette packages, brokerage firms wouldn't like it. But it might bring fiduciary standards a front-and-center discussion topic for firms and their clients, resulting in higher standards and better service for the investing public.