Brokers Admit They're Not Really Financial Advisors

Brokers Admit They're Not Really Financial Advisors

Lobbyists for the brokerage and annuity industries did something interesting recently to get out from under the extra burden imposed by the Department of Labor's new "Fiduciary Rule".  The rule would force brokers and annuity agents to act as fiduciaries when dealing with clients.

FULL TRANSCRIPT

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Patrick King: Hey folks, I'm Patrick King with Transformative Financial. Here on this channel we help people make money, keep money, and feel more financially secure along the way. If that's something that you're interested in, please contact me. My email is patrick@transformative-financial.com. I'd love to talk with you and see if it's a good fit. However, today I wanted to share some news with you.

First off, I do have the flu so if I sound a little different and seem a little low energy that's why it is. PSA - get your flu shot and, no Mom, I did not get my flu shot and yes, you told me so. Lesson learned. Second of all, I want to thank everyone for their comments on last week's video. You made me feel great especially this week when I was sick talking about how dapper I looked in my sport coat.

Leave me your comments next time, see what any requests that you want me to wear on the future videos maybe I'll pre-order that tuxedo at some point. Thanks to all of you for lightening up my day with that. The news that I wanted to share with you revolves around some litigation that's happened in the financial services industry. Little quick background, I've talked to you in the past videos about the importance of working with a fiduciary financial adviser.

Fiduciary again, if you haven't seen those videos is someone who's legally required to put their client's interests ahead of their own. So as a fiduciary adviser, I'm legally required to put my client's interests ahead of mine. Now, this is a concept that's been around for centuries. In the United States, to be a registered investment advisor, RIA as it's called sometimes, it's been a law that you must be a fiduciary since 1940 here in the US.

Now, why is that important? Because the financial sales industry, your brokers, and insurance salesman, while it's important to have those things available through a sales channel and not just an advice channel I think, those brokers and insurance agents have been positioning themselves as a source of financial advice throughout the years.

So, they're moving into that territory of financial advice where it is legally required that you be a fiduciary. However, we all know that -- or maybe you don’t -- know that the brokers and insurance agents are not always fiduciaries. I guess being a fiduciary can get in the way of closing a sale sometimes. I think about the character Gil from The Simpsons in a lot of ways when I think about that. We can't have that, can we?

Video clip: “Shut up Gil, close the deal, close the deal.”

Patrick: Recently the Department of Labor, I guess it's a couple of years now, it's been a while things have been bouncing around the courts. The Department of Labor instituted, easy for me to say, a fiduciary rule that would require people who deal with advice on retirement accounts be fiduciaries. Basically, if you deal with any kind of retirement account IRA, 401K with a client you're required to be a fiduciary. Well, there have been some lobbying groups that have appealed this.

The lobbying groups for the brokers, the securities industry, and the annuity industry, sued the Department of Labor and said, “Hey, this doesn't need to apply to us, this fiduciary rule would be onerous for us to implement this and we don't need to anyway.” What was their argument? Their argument was that in spite of calling themselves advisers in their marketing materials and on their business cards and in their advertising they said, “Hey we're not really advisers at all.”

They said that they're just salespeople. They literally argued this -- that they’re salespeople that don't have a relationship of trust and confidence with their clients. Even though they hold themselves out to the public in their marketing as advisers they really don't give advice per se according to the law so they shouldn't be held to the fiduciary rule.

Well, guess what? They won. They won. The appeals court said, “ Hey, you're right. Based on these definitions the fiduciary rule doesn't apply to you.”

It's crazy to me that out of one side of your mouth complain that yes, this fiduciary rule makes it hard for us to give advice to clients since they have been advertising in the past, lobbying against the rule. Then, to say in the court, once you finally get there that, "Hey, we're not really advisers at all. We're salespeople. Our clients don't expect a level of confidence and trust from us in this transaction. Therefore, this rule doesn't apply to us."

Well, you can't have it both ways. Look, either you give advice and you hold yourself out to the higher standard or you call yourself a salesperson. It's okay to be a salesperson but don't muddy the waters like this. If you're going to be an advisor, act like one. That was the news I wanted to share with you today. Obviously, it's something I'm very frustrated with and passionate about.

[Laughs] If I’ve got the flu and I put on clothes and I'm not here in my pajamas to talk about this. [coughs] Excuse me. My last parting thought here is, when you watch that television commercial that says, "Ask your financial advisor about blah, blah, blah." Just remember, what they really mean is, “Ask your financial salesperson about blah, blah, blah.” They don't even consider themselves advisors when it's convenient for them.

When it is inconvenient for you to be an advisor and you don't call yourself one, you're not really an advisor, right? Again, folks, sorry for being a little incoherent this week, I’m under the weather. Thank you so much for watching. If you like this video, click like. If you want more of these videos, click subscribe. I would really appreciate that. Until next time. I'm Patrick King with Transformative Financial. Cheers. Talk soon.

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