As we've previously written, there's a big difference between stockbrokers and true financial advisors. Brokers are salespeople: Because they're paid to sell you investments or insurance, they operate under a continual conflict of interest.
True financial advisors, on the other hand, only sell advice, not products. Unlike brokers, they are what's known as fiduciaries, meaning they must place clients' interests ahead of their own. Align Wealth Management is a fiduciary firm.
There's been a major development on this front. Early this month, the Department of Labor ruled that all advisors giving guidance to clients with 401(k)'s or IRAs must adhere to a more stringent "fiduciary" standard. This new rule, which goes fully into effect in 2018, is aimed squarely at brokers. For the first time, brokers will have to act more like true advisors.
At Align, we believe this is a step in the right direction. Consumers should never have to wonder whose interests their "advisor" is putting first. But the fact is that the new DOL rule is riddled with weaknesses. In fact, brokers will be allowed to continue many of the practices that should concern their clients. For example:
- Taxable accounts aren't covered. The DOL's rule only applies to particular types of retirement plans. That means that brokers can continue to use the old, conflicted approach when advising clients about their taxable accounts.
- Sales commissions will continue. Brokers will still be able to earn a payout for each sale they make. They'll simply have to provide a contract stating that their advice is in their client's best interests. This compromise allows the old, conflict-prone compensation model to remain in place.
- Brokers will be allowed to recommend questionable products. The brokerage industry has drawn criticism for peddling wildly expensive annuities, mutual funds and other more complex products, even if their performance doesn't merit their cost. Under the DOL rule, they will still be allowed to do this.
It's important to note that the brokerage and insurance industries fought hard against the Department of Labor's effort to impose its fiduciary rule. Complying with it will be expensive, and it will no doubt cut into their profits. Make no mistake, brokerage firms will adopt a higher standard of client care not because they want to, but because they've been forced to.
Align Wealth Management has always been a fiduciary firm. We chose this consumer-friendly model because we believe it's important for clients to trust their advisors. Acting in clients' best interest isn't something we're doing grudgingly, it's our privilege. Caring for our clients in the most objective, ethical way possible is our core value proposition and our business mission.