Is your financial advisor a fiduciary?
If you don't know the answer, you should.
Fiduciaries are bound to make investment recommendations that are only in the interest of the client. Other investment advisors like brokers are not--which some argue could lead to conflicts of interest.
Adam Chodorow is a professor of tax and business law at the ASU Sandra Day O'Connor School of Law.
He says the concern is that advisors that are not bound by fiduciary duty typically work on commission and could have split loyalties.
"The broker works for the company he works for. He's their employee and he's supposed to be making them money," Chodorow said.
That means they could be selling client's products that bring them a higher commission rather than the most return for a client.
A new rule set to take effect in April, was supposed to change that for financial advisors who sell retirement investments for Individual Retirement Accounts, 401k, etc.
It would require anyone that sells retirement investments to act in the best interest of clients as fiduciaries are already required to do.
The rule is a holdover from the Obama administration, and is currently in limbo while the Trump administration reviews it.
Professor Chodorow says implementation could provide more consumer protection but would completely disrupt how the industry operates. He also says it would expose brokers to a lot of risk and liability they have never had to assume before.
"It allows the buyer to sue any time something goes wrong," he said.
Regardless of what happens, he says we all need to be asking advisors whether or not they are fiduciaries and how much they are making off of your investments.
And before you commit to an investment do some of your own research to make sure it’s right for you.
"You've got to take the information they give you analyze it. Make your own decision to either buy it or not buy it," Chodorow said.
Be sure to shop around, and if you don't like the fees negotiate or move on.
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