How to Use The Fiduciary Rule to Fire Your Financial Advisor

Have you ever wondered whether your financial advisor is giving you solid advice? Or, exactly how they’re getting paid?

If so, you’re not alone.

Recent headlines regarding the Fiduciary Rule have caused sincere concern among consumers who hire financial planners. And due to the backlash, millions of people are starting to rethink how their investments are handled – and who they are handled by.

What is the DOL Fiduciary Rule?

Before you can understand what the fuss is all about, it’s important to understand the Fiduciary Rule and its intended consequences.

The Department of Labor (DOL) Fiduciary Rule is a new law set to be rolled out in early April of 2017. The rule, if implemented, would elevate all financial professionals who advise on retirement accounts (i.e. IRA’s, 401k’s) to the role of “fiduciary.”

In the context of financial advisors, a “fiduciary” is a professional who is legally obligated to give advice that is in your best interest.

While this sounds like common sense, most financial advisors do not currently adhere to the fiduciary standard. They can sell products in return for commissions and don’t need to take quality or fees into consideration when making recommendations. Many advisors and their respective firms are against the Fiduciary Rule because the added level of transparency could reduce their incomes.

Perhaps your eyes are already glazing over. If so, here is John Oliver with a more entertaining overview of financial advisors and the pending Fiduciary Rule:

That video debuted on June 12, 2016. Since then, a new administration has taken over and things have taken a slight turn.

In February of 2017, the Trump administration announced their intention to delay the implementation of this rule at least 180 days. In the case of delay or cancellation of this new rule, financial advisors and other retirement planning professionals could continue giving advice that may be contrary to their clients’ best interests.

Why would the Trump administration delay this massively important rule? In short, they feel the rule would “limit” the choices consumers have. If you think that sounds crazy, you are not alone.

Here’s what White House National Economic Council Director Gary Cohn told The Wall Street Journal in an interview:

“We think it is a bad rule. It is a bad rule for consumers…. This is like putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.”

4 Questions You Must Ask Your Financial Advisor

While the Fiduciary Rule could be put off indefinitely or laid out as planned, the fact that it’s been in the news has been a net positive for consumers.

Just hearing of the rule has made many investors ask questions about how their financial advisor is getting paid. And some people are finding their financial advisor isn’t a fiduciary at all – at least not 100% of the time.

Remember, most financial advisors operate under the suitability rule. These financial professionals have the ability to take their fiduciary hat on and off.

One day they are charging you a transparent fee and the next they are selling you a non-traded REIT in return for a 10% commission. It’s important to confirm that your financial advisor adheres to the Fiduciary Rule 100% of the time.

Unfortunately, not everyone knows how to question their financial advisor tactfully – or even switch advisors if they don’t like what they hear.

During a recent conversation with a colleague, I learned that some of her close friends received push-back when questioning their advisors on the Fiduciary Rule and how they were compensated.

Unfortunately, a lot of supposed “financial advisors” are just salesmen who are good at turning the tables on anyone who dares to ask questions. She was the catalyst for this blog post and the following is my response:

“Regardless of how much your advisor pushes back, there are some questions that truly deserve answers. If your financial advisor cannot or will not answer these questions, you should walk – no, run – out the door as quickly as you can.”

Questions you should always ask your financial advisor include:

How are you compensated?
Do you ever accept compensation in the form of commissions (i.e. life insurance, annuities, mutual funds)?
How much am I paying in annual fees for 1) your services and 2) the cost of the underlying investment products?
Are you a fiduciary 100% of the time?
Are you a CFP® Professional (CERTIFIED FINANCIAL PLANNER™ Professional)?

Maybe you feel like this process deserves more than five questions. If so, here’s an eight-page questionnaire provided by the Financial Planning Association.

Or, maybe asking these questions feels like a waste of time and you want to get right to the point. If so, consider asking them to sign a letter expressing their commitment to being a fiduciary 100% of the time. Here is an example:

The Letter Your Broker Won’t Sign

Ideally, you’ll want to work with a fee-only financial advisor who is paid for giving advice – not for selling financial products. You’ll also want to work with a financial advisor who is a fiduciary 100% of the time and who has gone the extra mile to become a CFP® Professional (CERTIFIED FINANCIAL PLANNER™ Professional).

If your financial advisor hesitates to answer any of these questions, gets agitated, or gives answers you don’t appreciate, this is a huge red flag. No matter what, your financial advisor should feel totally comfortable explaining the fees they charge and the services they deliver in return. If they don’t, they probably have something to hide.

How to Fire Your Financial Advisor

If your financial advisor ducks the questions listed above, you have two choices. You can either a) continue working with someone who may not have your best interests in mind, or b) search for a new financial advisor who is legally required to put your interests above their own.

If firing your financial advisor is on your agenda, here are the steps you should take next:

Step #1: Interview at least three new financial advisors.

Before you fire your financial advisor, you should find a new professional to replace them. As mentioned already, you should look for a financial advisor who has the CFP® designation and is a fiduciary 100% of the time.

Consider the following resources to help you find a financial planner in your area that meets those requirements:

Also, make sure you hire a fee-only financial advisor who is paid for advice and not sales volume. This will ensure you’re not being scammed into buying inferior investment products that pay a broker huge commissions.

And remember, fee-only and fee-based are NOT the same!

Step #2: Let your old financial advisor know you’re moving on.

If you feel comfortable doing so, it’s always best to let your old financial advisor know you’ve decided to work with someone else. They’ll find out anyway if and when you transfer your investment accounts to the new institution, so they might as well find out from you.

You can simply thank them for their time and effort over the years and give them the old “it’s not you, it’s me” line.

More often than not, your old financial advisor will treat you kindly and respect your decision. Your exit may even provide them with valuable feedback they can use to improve their business practices going forward.

On rare occasion, you will get the financial advisor who becomes defensive and/or tries to convince you to stay. This type of response will likely validate your decision to move.

Step #3: Let your new financial advisor handle the transition.

If you don’t feel comfortable letting your financial advisor know they’re fired, you will be glad to know that the new financial advisor can deliver the bad news for you. In fact, they can do this without even contacting the previous advisor.

Your new financial advisor will request recent copies of investment account statements, have you sign an account transfer form, and submit to his/her back-office to process.

The old financial advisor and their firm will receive the request and begin transferring your accounts to your new fee-only, CERTIFIED FINANCIAL PLANNER™ Professional who adheres to the Fiduciary Standard 100% of the time.

Final Thoughts

Whether the new Fiduciary Rule takes hold or not, I can only hope that consumers are paying attention.

Before now, consumers may have assumed their financial advisor was giving them only honest advice. But now that they understand not all financial advisors are fiduciaries, they can ask questions and get some much-needed answers.

While the right financial advisor can leave you a lot better off, the wrong financial advisor can give you questionable advice and cost much more than he or she is worth. At the moment, it’s up to you to figure out where your financial advisor stands.