Earlier this month, President Donald Trump delayed the onset of an Obama-era law that would make all financial advisors for 401(k) retirement plans, individual retirement accounts, and other retirement savings plans act in their clients’ best interests. This law is often referred to as the fiduciary rule because it effectively makes all advisors for retirement savings act as fiduciaries.
But let’s take a step back, what does an advisor do? According to Forbes.com, there are four main types of advisor: registered representatives, financial planners, financial advisors, and money managers. Each of these classifications comes with varying certification requirements and ethics considerations.
For example, while there is no certification necessary to be a financial planner, those who have earned different types of certification (CFP, PFS/CPA, ChFC) are also referred to as financial planners. Meanwhile, registered representatives are also known as bank representatives, stockbrokers, and investment representatives, and all of these are paid commissions to sell insurance and investment products, according to the Forbes article.
In this mix of all of these confusing terms, the term “fiduciary” is a clear signal of something good. Having a status as a fiduciary is an ethical marker. Annuity Digest summarizes it well: “A person with fiduciary status is legally required to act in the best interests of their client. Fiduciary status requires that the financial advisor is prohibited from engaging in transactions that may involve a conflict of interest, as client interests have to come first.”
The site also mentions that before 2012, Registered Investment Advisors were the only classification to have fiduciary status. This is what the fiduciary rule attempted to correct.
While many of us have not even thought about retirement, it is never too early to begin saving. A 401(k) is sometimes viewed as the only option for retirement savings, but as an individual, you can open an IRA (Individual Retirement Account).
CNN Money outlines the differences in types of IRAs. Both Traditional and Roth IRAs allow an individual to save for retirement without being tied to a company. This helps you avoid paying certain taxes on your savings while earning compound interest.
Bankrate.com has a calculator that can help project how much you save for retirement based on age, starting balance, annual contribution and other factors. The site estimates that a 22-year-old person who opens a Traditional IRA with $500, contributes a thousand dollars per year and has an adjusted gross income of $20,000, would have an IRA balance of $274,293 at age 65.
The caveat to this amount? Well, lots of things. But chief among them is that your money has to be invested wisely, and at some point in that 43 year time span, you will probably want help with this. You will want to find someone whom you can trust to put your best interests first. You will want a fiduciary. But Trump’s attack on the fiduciary rule has made this task harder and cast more doubt upon the future of fiduciaries.