What fiduciary means, and why you just lost it.

fi·du·ci·ar·y
fəˈd(y)o͞oSHēˌerē,fəˈd(y)o͞oSH(ə)rē/
adjective
involving trust, especially with regard to the relationship between a trustee and a beneficiary.
“the company has a fiduciary duty to shareholders”
noun
a trustee.

More Nanny-State Regulations

No matter what Donald Trump, or right-wing nut-jobs say, regulations are not all created out of a deep liberal desire to control your life. The nanny state is just a ruse, created by people who are convinced on the one hand, it is your God-given right to own incandescent light-bulbs, and on the other hand, if it is not specifically stated in the Constitution, you don’t deserve it, moocher. A fiduciary relationship between your financial planner and you is not a right. But it was about to be deemed as such.

Your broker works for, well, your broker

This scared the crap out of the investment industry. Imagine if the person who invested money for you was responsible for taking care of you. So when they churned  your account, running up fees that cut into your returns, or put you in the latest and greatest that they heard about on a conference call that they were not paying much attention to, those actions could be deemed a conflict in their trusted relationship. The trusted relationship you may think they established with you. They don’t have this relationship with you. You are a buyer, and buyers get screwed a lot.  It happens a lot more than you think. In fact, there ought to be a law. And there almost was, establishing a fiduciary relationship between you and your financial planner. The result? They worked for you. And if they screwed up? You had recourse. A trust had been violated.

So why was this so threatening?

For one thing, there is a lot of incompetence in the investment industry. To put it mildly. Lots of lawyers would file against lots of brokers for lots of smelly deals that were not in the interest of the broker’s clients. The scope of this could be disastrous for an industry that is already held in deep suspicion by Nanny-state advocates like Senator Elizabeth Warren. Imagine the sheer volume of lawsuits, and the stories that would come out of those lawsuits. They could stain an already deeply stained industry. One that is looking forward to being entrusted with your Social Security if people like Paul Ryan have their way.

Companies and Shareholders

A publicly traded company has a fiduciary relationship to its stockholders. You will recall that Donald Trump took his New Jersey casino public and in ten years, left his stockholders holding their guts, and shares that were worth 10 cents on the dollar they had invested. And Donald? No telling what he made, but his deferred losses may be the reason he does not want to show the public his taxes. He may not have paid any in years.

So now what?

There is no such thing as a sure thing. And now, you may need to consider what relationship you have with your financial planner. There are alternatives. Vanguard Index Funds just follow the market as a whole. No financial advisor ‘puts you in’ investments, and the fund does not charge you for this service. The returns have been pretty good, and the fund owners insist they can beat most investors. There are financial planners who have embraced the fiduciary model, and they are worth a look. Be sure to ask for references.
Finally, no one has your back, so as in all things in a deregulated country, let the buyer beware.

Speak!