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J. Patrick Collins Jr., CFP®, EA

The 5th circuit court recently ruled that the Labor Department’s rule requiring financial advisors to act as a fiduciary to an investor’s retirement savings is “unreasonable”.  That is exactly the word the court used to describe the rule.  Greenspring has been operating as a fiduciary since its inception in 2004.  There are countless other firms that predate us by decades, so we find it hard to believe that it’s unreasonable to act in this capacity.  What did the rule actually say that made it unreasonable?  Basically this- when dealing with an investor’s retirement savings, a financial advisor must act in the client’s best interest.

Here is what is unreasonable:

  • The vast majority of advisors can continue to sell products to clients that are suitable, but not in their best interest (in plain English- advisors can sell products that pay them a lot of money as long as they can prove it’s suitable for a client)
  • Annuity sales pitches continue to mislead investors about how they operate and then have more than a decade (in some cases) where consumers have to pay a surrender fee if they want out
  • There is almost no transparency when it comes to fees- outside of firms like Greenspring Advisors who both publish their fees and produce quarterly invoices, the vast majority of advisors and the firms they work for hide how much they get paid from the products they sell
  • Senior citizens are often targeted with these misleading sales practices
  • The model of an advisor making all his income upfront in a commission creates no financial incentive to advise the client on an ongoing basis.  That structure may be fine for selling a house since it is transactional but a financial advisor must work ongoing to adequately serve a client
  • Worst of all…clients have no idea if their advisor is a fiduciary or not.  Just in case you are wondering- if you go to and type in your advisor’s name you will see their information come up.  If you see the following label, your advisor is not a fiduciary (at least all of the time):

You don’t have to look any further at who lobbied the hardest to get this rule overturned- brokerage firms.  Firms (big and small) who make at least some portion of their money from product sales, commissions and kickbacks.  And while it appears they won in court, the public has been voting with their feet.  From 2010 to 2015 asset growth at large brokerage firms (Merrill Lynch, Morgan Stanley, etc) was about half the growth experienced by fiduciary advisors. As the public becomes more educated, this trend is only going to accelerate.