Fiduciary Responsibility in Retirement Planning: What Does it Mean?

Fiduciary Responsibility in Retirement Planning: What Does it Mean?

There are many different types of professionals who have a fiduciary duty to their clients. Trustees, doctors, lawyers, and legal guardians are just a few examples. Having a fiduciary responsibility means that a person is legally and professionally obligated to represent the best interests of their client or trustee. If a fiduciary reneges on their obligation and acts primarily in their own interest, they could be subject to legal penalties. The financial industry is another area where the fiduciary responsibility is applied, but not every financial advisor is a fiduciary. What does a fiduciary responsibility mean in the context of a relationship between financial advisors and their clients? Read on to find out more about how this concept applies to retirement planning.

Does Your Financial Advisor Have a Fiduciary Responsibility?

When a financial advisor manages money or property on behalf of another, that person bears a fiduciary duty to that person no matter the situation. First, they have a duty of care. This means they must make informed decisions based on all available information before making recommendations or plans for their clients. Second, they have a duty of loyalty; meaning they cannot make recommendations to clients that would otherwise be a conflict of interest. For example, if a financial advisor receives commissions for the financial products they sell, and they fail to inform their client of this fact, they would be in breach of their fiduciary duty of loyalty.

While some financial professionals hold themselves to a fiduciary standard, it is important to remember that the fiduciary standard does not apply to all professionals in the financial industry. In fact, the Department of Labor’s fiduciary rule was scrapped in 2018 and later replaced with the Securities and Exchange Commission’s (SEC) Regulation Best Interest. Broker-dealers are not required to abide by a fiduciary duty; instead, they are bound to act in the best interest of their clients. This means that the broker-dealer must have a reasonable belief that what they recommended to their client is in their best interest. Investment advisors that are registered with the SEC have a similar best interest obligation while providing advice to clients and must favor the clients interests over their own, despite charging fees. While Regulation Best Interest has more stringent regulations than a suitability standard — which allowed investment advisors and broker-dealers to make recommendations that benefited themselves more than their clients — Regulation Best Interest does not benefit the client as much as those who hold themselves to a fiduciary standard. 

If you are speaking to a financial professional, you should ask them these questions to find out if they have a fiduciary responsibility to you:

• How do you earn your money?
• What certifications and licenses do you hold?
• What services do you offer and who are your typical clients?
• How often do you communicate with clients?
• Can you provide a written guarantee of your fiduciary duty?

If you do not like the answers to these questions, or if they cannot provide proof that they are a fiduciary, you may want to consider consulting a different financial professional. 

Changing the Definition of a Fiduciary

In recent years, the SEC has been under pressure to clarify the definition of a fiduciary so investors will better understand the relationship they have with their financial advisors. While this definition change would not apply a fiduciary responsibility to all financial industry professionals, it may put more broker-dealers in the hot seat to exercise more than a“care obligation” when working with their clients. This care obligation was defined by Regulation Best Interest as believing that the brokers recommendations were in the best interest of their client.  

At the present time, both the SEC and their Investor Advisory Committee agree that the definition of fiduciary needs to be updated to protect investors from being misinformed and to take actions to protect retail investors. Although no specific proposals have been offered, it is unlikely that the securities industry will be regulated by a fiduciary standard. Every investor should exercise care when taking advice from financial professionals. Take the time to find out if your financial professional has a fiduciary responsibility, and if they do not, it is a good idea to find one you can trust to ensure that they are acting in your best interest as a consumer.

Crash Proof Retirement and the Fiduciary Responsibility

As licensed retirement phase experts in the financial life insurance industry, Phil Cannella and his team at Crash Proof Retirement have a fiduciary responsibility to represent your financial interests as a client. The team at Crash Proof Retirement is happy to answer any questions that you have about retirement planning and provide you with a complimentary financial education, at no cost to you, so you can make the best decisions about your retirement financial future. If you would like to know more about the Exclusive Crash Proof Retirement System and how you can use the proprietary financial vehicles to earn credited interest while protecting your nest egg from losing principal in a stock market crash, get in touch with us right away! Call 1-800-722-9728 or visit crashproofretirement.com to schedule your free financial checkup.