The securities industry is celebrating. It has successfully killed an Obama initiative that required brokers to put the interest of their customers ahead of their own. Registered investment advisors continue to have this obligation (known as a fiduciary duty).
I agree with Micah Hauptman, financial services counsel to the Consumer Federation of America, who said: This is a terrible day for retirement savers.
But I see a silver lining in this dark cloud.
You’re now on notice the government will not protect you from the securities industry. Your broker is permitted to have conflicts of interest and to resolve them in his or her economic interest (and against yours). The only constraint is the weak requirement that investments recommended by your broker must be “suitable” — a vague term, difficult to enforce.
This is the time when you need to take control of your financial life. Fortunately, it’s easy to protect yourself. Here are some options. They are all better than dealing with those whose “advice” is more likely to benefit themselves, than you.
Use a robo-advisor. Almost all of them recommend low management fee index funds, focus on your asset allocation and ensure your portfolio is broadly diversified. They also charge fees that are a fraction of those charged by traditional advisors and brokers.
You can find a useful list of robo-advisors and a description of their offerings here.
Invest directly with Vanguard
Vanguard is the industry leader in offering low management fee index funds. For many, investing in one of Vanguard’s Target Retirement Funds or the right LifeStrategy Fund, is the only investment you’ll ever need.
Intelligent and responsible investing doesn’t have to be complicated. That’s a secret Wall Street really doesn’t want you to know.
Use a registered investment advisor
If your financial needs are more complex, you would be well advised to use a registered investment advisor. By law, these advisors must always put your interest ahead of theirs. They can have no undisclosed conflicts of interest.
The question I get asked most frequently is: How do I choose a competent registered investment advisor?
Over the years, I’ve recommended this search tool sponsored by Dimensional Fund Advisors. The feedback has been uniformly positive. These advisors provide solid, academically based, investment advice and adhere to the highest ethical standards.
It’s depressing that you have no protection from those brokers who are likely to transfer a good portion of your hard earned money to themselves, under the guise of “managing it.” Yet, knowing you’re on your own is empowering.
You’ve never had so many options to invest in a way that enhances your goal of retiring with dignity.
This is the time to make lemonade out of this lemon.
Resource of the week
The New York Times discusses the death of the fiduciary rule.