Are you a fiduciary?
Many of us are without realizing it. Parents are fiduciaries for their children. Teachers are fiduciaries for their students. Adult children can be fiduciaries for their parents, if the parent becomes disabled in some way. A fiduciary is anyone in a position of trust, who is supposed to act on behalf of someone else—making the decisions that they would make, if they had the fiduciary’s knowledge and capabilities.
Fiduciary duties are a common-sense approach whenever someone is supposed to work on your behalf. If we hire a contractor, we’d be upset if he didn’t tell us that the front door he purchased at Lowes cost a thousand dollars more than the same door at Home Depot. But for some obscure reason, many financial advisors aren’t held to a fiduciary standard. They’re paid commissions they don’t have to disclose and commit people to products that don’t make any sense—all because of a depression-era law that was a political compromise at the time.
But since Congress made financial products a “buyer-beware” good some 75 years ago, Congress is trying to fix it now. They’ve put IRAs and other consumer accounts under the Department of Labor’s jurisdiction, which administers the rules for company retirement plans. The DOL hasn’t finalized its new standards, but they’re supposed to impose fiduciary standards on the brokerage industry. But you know that when a Federal Agency gets involved setting standards, the result will be myriad rules, regulations, and exceptions that will make the operating manual for a jet fighter clear by comparison.
This is all because common sense just isn’t very common. When you’re put in a position of trust, you need to act in the best interests of the person who trusts you.
Douglas R. Tengdin, CFA
Chief Investment Officer