Do you think Mother Teresa woke up in the morning trying to decide if she was going to help the poor and destitute, or have a day at the “spa” just for her? Silly question, I agree, but I am just trying to point out the fact that certain things are embedded in our DNA, and it cannot be turned on and off like a light switch.
If you been reading my column for any length of time, you have probably noticed that I have spent much time attempting to point out the benefits of working with an advisor who always places the client’s interest first. I have also tried to clarify the Department of Labor fiduciary standard ruling that has partially been implemented, but running up against a lot of resistance from special interest that do not want their salespeople to be required to do what is best for the client and not the broker or broker-dealer firm. As a registered investment advisory firm, we are obligated to treat our clients with fiduciary care always. Investment advisory firms will typically put this in writing in their client agreements. So, in a previous column, one of the things I mentioned was to ask your advisor if they are a fiduciary, and if so, put it in writing.
Just last week, someone at the securities exchange commission stated, and I’m paraphrasing, “how can a portion of money be treated with fiduciary care and the other portion not?” Which suggest to me, that even if the Department of Labor ruling is thwarted by special interests, the SEC is going to step in with an even more specific ruling regarding acting in a fiduciary capacity for all money, not just qualified money.
Investment advisory firms already do this, but the arguments against by insurance companies and broker-dealer firms are weak in my opinion. I believe that asking a broker to act with fiduciary care for part of the clients’ money and not having the same standard for another part of money places that broker and their firm in peril. Having been a retail broker long ago, I understand the training the broker/insurance agent is really about sales, not asset or investment management. So, for brokerage firms to suggest to the broker that they promote certain mutual fund families where the broker-dealer firm is making a “revenue-sharing fee,” the broker-dealer and broker are steering clients towards fund families that benefit the firm and brokers interest before the client. This is just one small example of what goes on in the retail world on a day-to-day basis. In my opinion it is very difficult for that salesperson to pivot being a fiduciary advisor depending on whether the clients’ money is qualified or not qualified. That is the current standard that I believe will change in the future. I do not think it is unreasonable to put the clients’ interests first all the time.
Some broker-dealer firms are attempting to profit from this Department of Labor fiduciary ruling partially implemented last June. Some broker-dealers that had sold mutual funds that are considered “A” shares, typically having a 5 ¾% load or commission upfront are now suggesting to their clients that they take that money and put it in their fee-based program in turn collecting high fees on money they’ve already made commission. One of these firms even has a commercial on TV where the broker is calling the client to talk about new laws that may affect their account and what they can do about it.
This is all quite confusing to the public. I suggest you scrutinize your relationship with whomever is working with your money.
Mark Patterson is Chief investment officer with MHP Asset Management and can be reached at (603) 447-1979 or mark@mhp-asset.com.
