investment steps

It was Dr. Martin Luther King who said “the arc of the moral universe is long, but it bends toward justice.”

Weighty words indeed, but they feel apropos of the back-and-forth we see in Washington over a rule meant to protect investors from unscrupulous financial advisors.

To catch you up, the Obama administration was on track to enact the “fiduciary rule,” a regulation that would require anyone who claimed to be a retirement investment advisor to meet a new, higher standard of client care.

Put simply, advisors would be required by law to act in their clients’ interest first, ahead of their own.

A  lot of people think their advisor does this already. They expect it. Many advisors even claim to meet the standard while dancing around the fact that they do not — at all.

If they did, they could and would plainly state, “Yes, I am a fiduciary.” Go ahead and ask your advisor “Are you a fiduciary?” and see what happens.

In fact, most financial advisors are not fiduciaries at all. They are brokers, meaning they are subject to the lower, “suitability” standard. And that has loopholes big enough to drive a truck through!

Tara Siegel Bernard, writing in The New York Times, just wrote an excellent piece explaining the real risks investors face by not using a fiduciary to manage their money.

In a nutshell, a court ruling has temporarily derailed the Obama administration rules. But the Securities and Exchange Commission seems to be working toward its own, more expansive version of the fiduciary idea, and some states could legislate on the matter as well.

It’s hard to kill a good idea, and Dr. King’s words ring true. Justice is difficult to evade.

Until then, Siegel Bernard offers this excellent step-by-step summary of what you can do to protect yourself now:

• Work with a fiduciary, or someone who pledges to put your financial interests ahead of their own — all of the time, with all of your money. Get them to pledge to their fiduciary duty in writing. Working with a fiduciary is not fail-safe, but it is a consumer’s best defense. So-called investment advisers, who generally must register with the S.E.C. or a state securities regulator, must put their customers’ interests first, regardless of what accounts they are working with.

• Choose a financial planner with strong credentials. Anyone can call themselves a financial adviser, at least for now, so don’t accept titles at face value. Certified financial planners hold a professional designation with rigorous curriculum and experience requirements. They can manage your entire financial life, but can also provide guidance locating reputable specialists, like an estate planner, or, say, a life insurer who will sell you only what you need.

• Consider paying the adviser outright. No financial adviser is entirely free of conflicts. But it’s often easier to eliminate those conflicts when they are paid for their time or advice and their paychecks are not dependent on selling you a financial product.

• You can find a list of fee-only financial planners through the Garrett Planning Network, the National Association of Personal Financial Advisors and the XY Planning Network.

Perhaps the courts, Congress and the states will catch up to protecting investors in time.

Until then, being an activist in your own interest is the best course of action.

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