The Fiduciary Rule and Why its Important

The fiduciary rule is a piece of very important legislation bouncing around Washington that is not receiving the attention that it deserves. This legislation has its roots in the financial events that led to the last devastating recession that America is still recovering from, and is relevant to every single American who receives financial advice or management from a professional.

This article briefly covers everything you need to know about the fiduciary rule and why it is so important to you.

What Is a Fiduciary?

A fiduciary is someone who has an ethical responsibility to act in the best interest of their clients. A fiduciary’s sole benefit from managing the affairs of a client should come directly from the client, and not from outside salespeople, commissions, kickbacks, bribes or any other form of compensation or favor. A fiduciary relationship is both professional and ethical, and is regulated by relevant laws and governing bodies.

Medical and legal professionals are examples of people with a fiduciary obligation to their patients and clients.

What Is the Fiduciary Rule?

The fiduciary rule is a piece of Obama-era legislation that was meant to codify the ethical and legal responsibilities of financial advisors with respect to their clients. However, this legislation was never implemented, and the Trump administration is currently blocking its approval. The Trump administration is currently promoting alternate legislation that would water-down the fiduciary rule, and essentially leave the rules for financial advisors unchanged from those that governed the industry prior to the recession.

Most Americans would be surprised to learn that their financial advisors are not actually legally obligated to always act solely in the best interest of their clients. Many financial advisors push products and plans on their clients that are not in their clients’ best interest and which have additional benefits for the financial advisors.

Why Is the Fiduciary Rule Important?

Without a fiduciary rule, there is no guarantee that your financial advisor is providing you with the information that you need to make informed decisions or all the options that are available for ensuring that your investments are safe and returning the maximum profit to you.

While the concept of ‘buyer beware’ is applicable to many aspects of life, there are some areas that are just too complicated for the average person to be able to make informed decisions without professional help, which is why they hire outside professionals to act in their best interest.

Just as doctors and other medical professionals are obligated to act in the best interest of their patients, or clients, the fiduciary rule states that financial professionals are hired with the strict ethical obligation of representing the interests of their clients, and not themselves or the firm that they work for.

The efforts of the Trump administration to water-down the fiduciary rule legislation is a direct attempt to ensure that the interests of the average American is secondary to the interests of financial advisors, which means that the average American has no guarantee that the financial advice that they are receiving is actually in their best interest to follow.

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