If you have ever needed a clear, simple demonstration of the fact that the financial advisory industry is, to a large extent, a hustle designed primarily to soak you for as much money as possible, here it is.
A fiduciary is someone who is legally obligated to act in your interests. They must place your best interests first. They must make decisions based on what is good for you, not what is good for them. When it comes to professionals who advise you on how to invest your money, there are certain rules that obligate some of them to act in your best interests. But many other types of professionals who advise you how to invest your money are not obligated to do that. They are free to scam the hell out of you to the best of their abilities. They are free to steer you into investments with high fees that do nothing but enrich them at your expense.
Now, the Labor Department is trying to update its rules so that more investment advisors—like the broker you call up and ask for investing advice—are obligated to act as fiduciaries. This is an example of the government attempting to pass a common sense regulation protecting consumer. What the government is proposing here is: Hey, let's make it so your investment advisor is not allowed to scam you. That is the controversial proposal now under discussion.
And how is the financial advisory industry reacting to this proposal? Oh, so predictably! The New York Times sums it up:
Opponents — including the Securities Industry and Financial Markets Association, known as Sifma, which represents large Wall Street firms, and the Financial Services Institute, which includes smaller independent advisers — contend that new rules could disrupt the way they get paid, and therefore make it difficult for them to serve smaller investors...
But the way brokers and insurance agents are compensated often contains potential conflicts: a broker might receive a higher commission for recommending one investment over another.
Hahahaha. This entire thing is delightful, in that there is no way to spin this as anything other than financial professionals pouting over the prospect of being barred from ripping off their own customers. The industry will tell you that there are many different categories of brokers and financial planners and financial consultants, and they all need separate and specific rules governing what they can and can't do. It's a smokescreen. Let's be clear about what the entire financial advisory industry wants: They want the legal right to be able to steer unsophisticated people into investments that pay more money to the advisor, and less money to the investor.
It is a fairly well established fact that the best thing that investors can do to maximize their returns is to seek out low fees. In this regulatory debate, we have the people who want to sell you advice about how to invest your money asking the government to allow them to continue giving you bad advice, because they can make more money that way.