Saturday, April 18, 2015

A Luxury Cruise on Financial Advice


In the USA, up until now, your financial advisor had no fiduciary duty to protect your interest under laws or regulations.  This means that his/her advice did not have to be in your best interest, it could be in their interest.  For example, an advisor with Company X could advise you to roll over your 401K into Company X mutual funds, because the advisor would earn a 10% commission and might win the all-expenses-paid Cruise to Monaco sales competition.  This seems silly, and it is.  Why would you take financial advice from someone who does not have to give you good advice?

You adviser could have a fiduciary duty to your best interests because they signed an agreement with you that obligates them to do this, but they are not required by law.  Some good companies do have this incorporated in their agreements, but many do not.

Luckily, the US Government has proposed to change regulations to make financial advisers have a fiduciary duty to protect your best interest, not theirs.  But watch out, it is still a proposal and could be negated by industry lobbying.  You need to ask your advisor whether the agreement that you signed with them has a fiduciary duty clause, and you need to read it and understand it.  Otherwise, you may not get good returns, but maybe get a nice postcard from Monaco.

Photo Credit: Flickr

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