Women's Money Blog

Did you know that Financial Advisers are not required to give you their best advice?

The law only requires most advisers to provide “suitable” advice.

That means it doesn’t matter if the adviser benefits more than you do, as long as the advice is generally “okay”, but is suitability really good enough? Did you like the restaurant you went to last night? Meh, it was suitable. How did your surgery go? Okay, the doctor was suitable.

If suitable isn’t good enough for restaurants and doctors, it certainly isn’t good enough for financial planning. Inconsistent standards in the financial services industry have allowed anyone, regardless of their competence or integrity, to claim that they are a “financial advisor” and the lack of differentiation between brokers and investment advisors has resulted in different standards of care by individuals that appear similar.


The distinction is further blurred by aggressive marketing practices that use words like “financial planner” and “financial consultant” to describe broker-dealers and suggest that their actions are in the client’s best interest. The low bar set by the “suitability” standard allows brokers to maximize commissions and fees. The “fiduciary” standard, on the other hand, is principals-based and does not permit any leeway in quality. Unfortunately, consumers can’t easily distinguish between the two, so the fraud, incompetency, and conflicts of interest of the brokerage industry have blemished the entire financial services industry and cost clients millions.

The brokerage industry would like to keep the suitability standard because they’re beholden to their company’s shareholders; brokers have to put the interests of their company before your interests.

What you need is a financial adviser that’s beholden to you - not the shareholders! Advisers who operate as fiduciaries are required by law to put your needs first and they will do so in writing, so make sure you know who you’re dealing with.

This past April, the Department of Labor (DOL) announced a rule that requires fiduciary-level advice for all retirement assets under the Employee Retirement Income Security Act (ERISA). This rule carefully balances much-needed consumer protections with access to retirement advice. The new fiduciary rule applies only to retirement accounts; it does not cover taxable investment accounts or investments purchased with after-tax dollars. That said, many in the industry believe it will encourage the SEC to extend the rule to all taxable accounts.

The key provisions of the fiduciary rule won’t take effect until April 10, 2017, with a transition period that goes through to January 1, 2018, but brokers are already beginning to worry. This rule is a great step towards protecting consumers and improving the financial services industry.

Check out my ABC 7 Roundtable Discussion with Gabriel Hament and moderator Alan Cohn for more on how the new DOL rule will affect you.

Please send any thoughts or questions to This email address is being protected from spambots. You need JavaScript enabled to view it.



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Thursday, 01 October 2020

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