While I disagree with much of Tony Robbins’ approach to investment management in his 600-page tome Money: Master the Game, he gets just about everything right in his recent Fortune article about the Fiduciary Rule.
With the Dow reaching record highs, Tony notes that “President Donald Trump’s plan to review the Labor Department’s fiduciary rule may be good news for Wall Street, but not for hard-working Americans saving for retirement.” I’ve written at some length about the Fiduciary Rule here, and I recently helped contribute to a NY Times article about it here. The gist of the Fiduciary Rule is this: Legal fiduciaries are obligated to put the needs of those they serve ahead of their own, but the Department of Labor found that the financial services industry often doesn’t do this. As a result, they proposed the Fiduciary Rule—regulation designed to ensure that consumers aren’t fleeced by overpriced financial products and conflicts of interests with financial advisors. About this fiduciary standard, Tony Robbins comments,
I’m a fan of the fiduciary standard. Doctors and lawyers are legally required to do what’s best for you—why not your financial advisor as well? While most people assume financial advisors are registered investment advisors (RIAs), who are legal fiduciaries, it turns out that less than 4% of them are. As if this weren’t confusing enough, there is another class of RIAs, so-called dual-registered RIAs, who are affiliated with a brokerage and sell financial products for a commission.
If the Fiduciary Rule goes away, what should consumers do? In addition to asking questions about fees, as Ron Lieber rightly points out in the aforementioned NY Times piece, consumers of financial planning can protect themselves by working with advisors who are already held to a fiduciary standard. With or without the Fiduciary Rule, there has long been a segment of the financial advisory community that has sought to place consumers’ interests ahead of their own. These advisors are known as “fee-only” advisors, and most are members of the National Association of Personal Financial Advisors (NAPFA), an organization whose members take an oath to never get paid in the form of sales commissions or any other type of compensation that can create a conflict of interest.
With the importance of finding a fiduciary advisor in mind, Mr. Robbins goes on to offer some additional advice and commentary:
Keep in mind that not every fee-based advisor is a fiduciary. Many financial advisors with brokerage firms offer fee-based accounts loaded with proprietary mutual funds that have high fees and outsized expenses they charge back to investors.
You’re on the right track when you find an actual RIA [Registered Investment Advisor]. But make sure he or she is unaffiliated with a broker-dealer, and get that in writing. An RIA who is a fiduciary is paid to give advice, pure and simple. A broker, on the other hand, gets paid a commission for selling financial products.
This isn’t an indictment of the many well-intentioned people who are brokers. But at the end of the day, many of them work for firms that have a vested interest in making as much money as possible for themselves and their shareholders—not for you, their client. By contrast, a fiduciary advisor must put your interests first.
Does it make that big a difference in the end? Consider this, according to America’s Best 401(k): Two neighbors who invest the same amount and generate identical investment returns over 30 years will have wildly different outcomes, depending on how much they each pay in fees.Assuming 8% gross annual returns, the neighbor paying 1% in fees will have 76% more money on the day he retires than the neighbor paying 3% in fees. The person with the higher fees will run out of money more than two decades earlier, assuming both withdraw from their accounts at the same rate.
Most of us need help with investing and financial planning because it’s complicated. Make sure you’re getting the right help. Get a second opinion, just like you would before making a life-changing medical or legal decision. Find a fiduciary who will review your entire financial picture and point out red flags.
The only thing I would add to this helpful advice is that consumers should avoid working with an RIA firm that solely offers investment advice and doesn’t also provide comprehensive financial planning services. Financial planning is so much more than just investing, and there are still many old-school RIA firms out there that have a myopic approach to personal finance that is solely centered on investing. Investing is always more successful, however, when it is done in conversation with one’s broader financial goals and in the context of a holistic financial plan. The advisors who are best trained to do this are CERTIFIED FINANCIAL PLANNER™ practitioners who either work for an independent RIA firm or who own their own practice. In sum, you want a CERTIFIED FINANCIAL PLANNER™ practitioner, but also one who is a NAPFA-registered fee-only fiduciary.