Any individual investor above middle-age has at one time or another been involved in an investment advice relationship with a financial professional who is compensated by the sale of a financial services product.
Life insurance and brokerage services are the best examples. If you stretch my examples a little bit, you might even be able to include real estate professionals.
I continue to meet with individual company retirement plan participants who are confused about the central elements involved in a fiduciary investment advice relationship. In honor of the current Olympics in Tokyo, I want to revisit the topic again today.
The Department of Labor’s Fiduciary Rule dates to April 2016. The most recent update went into effect on February 16, 2021.
Several times a week, I will have a conversation or e-mail exchange with an individual company 401(k) retirement plan participant who tells me “My financial advisor takes care of my 401(k).”
It never pays to argue. I just wish all individual company 401(k) retirement plan participants were aware of these facts. A financial advisor is a job description. A fiduciary is any professional who is upheld to a fiduciary standard.
A fiduciary investment advisor provides an individual company 401(k) retirement plan participant with independent, third-party investment advice on the menu of mutual fund options in a company 401(k) retirement plan account.
A fiduciary investment advisor discloses, in writing, that the financial interests of the client come first. A fiduciary advisor does not have any conflicts of interest in the investment advice provided. The written disclosure states that the fiduciary investment advisor does not get paid to sell a product to the individual company 401(k) retirement plan participant. Most importantly, this disclosure provides the highest ethical standards in the investment advice industry.
Your company 401(k) sponsor (your company) and your company 401(k) provider (Fidelity, Schwab, Vanguard, etc.) chose your default 401(k) mutual fund options. As an individual company 401(k) participant, you did not have a role in the decision-making process to pick your default menu of 401(k) mutual funds.
Common sense would tell you that an independent, third-party fiduciary level ranking of your default company 401(k) mutual fund menu would dramatically improve the long-term investment management decisions in your company 401(k) account.
Many times, common sense rather than what a financial services provider tells you, is the best investment management approach.
The gold medal standard of any investment advice relationship is fiduciary investment advice. In that company 401(k) investment advice relationship, the fiduciary investment advisor sits on the same side of the table as an individual company 401(k) retirement plan participant.
Like the Olympic athletes in Tokyo, Japan. You should strive for the gold medal standard of company 401(k) investment advice.
Ric Lager
Lager & Company, Inc.
