A fiduciary is someone who has a legal obligation to put a client’s interest ahead of their own. A financial professional with a fiduciary obligation must recommend investment products that are in your best interest.
Some financial professionals have this legal obligation and some do not. For instance, brokers do not have fiduciary responsibility, a Registered Investment Advisor does. A broker is required to recommend products that are suitable for their clients. But they may also legally sell products with substantial fees and commissions that can conflict with a client’s best interests.
The debate as to which financial professionals should carry fiduciary responsibility has been going for years. On April 2016, the U.S. Department of Labor released a Fiduciary Final Rule that said any financial advisors who provide advice regarding retirement plans must meet the fiduciary standard. The rule was proposed for transitional roll out from April 17, 2017 to January 1, 2018. Financial industry groups and the U.S. Chamber of Commerce have filed lawsuits challenging the rule.
The take-home for investors is to understand how their advisor is compensated and any conflicts of interest. Be aware of the fees and commissions you are paying. If it is recommended that you roll money from a workplace retirement plan into an Individual Retirement Account (IRA) weigh the costs and benefits. Steer clear of an advisor who says company match for your retirement account is not as good as an IRA. Understand that fees and commissions can significantly impact investment returns.
Use the FINRA BrokerCheck to find out about a broker’s history http://brokercheck.finra.org/