Can You Trust Your Financial Adviser?

Many people who work as financial advisers aren’t legally required to have their clients’ best interests at heart. Unlike lawyers or doctors, who are bound by oath to do no harm or to represent their clients’ interests faithfully, financial planners and advisers are free to sell any manner of subpar products.

The “fiduciary rule,” proposed under the Obama administration, seeks to resolve this conflict by making advisers legally bound to serve their clients’ interests in matters related to retirement accounts. (Some already do so, of course.) It hasn’t fully taken effect yet, though, and the new administration in Washington is reviewing the rule, with its future hanging in the balance.

Why would anyone object to the rule? Well, it all comes down to fees. Even a small difference in the fees between one investment and another can make a huge difference over a long period. When financial advisers recommend highfee products in order to line their own pockets, it hurts your ability to save for retirement. This can happen if, for example, a financial adviser was being paid a commission by a mutual fund to steer people toward that particular fund.

The problem is systemic. A study of the 1.2 million financial advisers registered in the U.S. from 2005 to 2015 found that 7 percent of them had misconduct on their records. The problem is even more pronounced at big firms, where as many as 15 percent of advisers have a stained record. To make matters worse, “Roughly one third of advisers with misconduct are repeat offenders.” The White House noted last year that “conflicts of interest in retirement advice cost America’s families an estimated $17 billion a year.”

Even if the worst happens and the fiduciary rule is struck down, you can still take steps to protect yourself. If you have a financial adviser, make sure they are a fiduciary and legally required to put your interests first. Advisers designated as “fee only” won’t be looking to earn commissions from selling you products, and you can seek one at napfa.org.