For today's throwback, we head to 2015 and a segment on WLBT's Midday Money in which Nancy explains what it means to be a fiduciary. This piece is timely since just last week, the DOL Fiduciary Rule was delayed for 60 days.
Transcript of the program:
August 19, 2015
Nancy Lottridge Anderson, Ph.D, CFA is a regular on Jackson’s local news station, WLBT, where she discusses financial topics on the program “Midday Mississippi.”
Fiduciary is a legal term. We usually put the word “duty” with that: fiduciary duty. That means you have an obligation to act in someone else’s best interest—to not put yourself first. We usually hear this “prudent man rule”—you must act as a prudent man, using reason, care and skill. Understand that prudence is in the eye of the beholder. So, it’s really quite subjective. But, it’s this idea that I’m not going to act in MY best interests; I’m going to act in the best interest of the person I’m working for (my client/the person I’m serving).
In finance, the question is: Who is a fiduciary? We’re having a big battle about this right now, because we have a broad range of people who work in the area of finance from insurance salesmen to commission brokers to investment advisors. An investment advisor—someone who is a Registered Investment Advisor (RIA)—I am—under the state of Mississippi or under the Securities and Exchange Commission (SEC), you are under that legal obligation to act as a fiduciary (to act in your client’s best interest). That makes sense that you would be under that obligation.
But, who is not a fiduciary? Actually, commission brokers. They have a lower standard related to the suitability. Suitability means you are selecting some investments that are suitable based on that client’s particular needs and goals. Fiduciary is just a higher standard. There is a move under way to change this. So, the commission broker industry is kind of fighting this. I am on the side of, well, why not? You should be doing this anyway. So, it’s buyer beware! Understand what that word means, and it’s okay for you to ask when you talk to someone about your finances: Are you a fiduciary?