To say the least, there’s been plenty of commentary on what the Trump presidency means to investors. Most of it represents the usual waste of space, compliments of those trying to read the tea leaves of an unknowable future. But this article grabbed my attention because it shares a message I agree with: In the current political climate or in any other, market-timing is always a dangerous idea. As the author says: “Letting one’s political opinions shape investing decisions is a good way to lose money.”
Even if your head agrees with me, your heart may still tempt you to shift your investments in reaction to best- or worst-case scenarios you hope or fear might come to pass. That’s one reason to work with a fiduciary advisor. He or she should (a) help you create a solid financial plan and “Investment Policy Statement” to serve as a blueprint for both of you to follow, and (b) warn you (vehemently) about what you stand to lose if you are tempted to veer away from your carefully crafted plan.
On the subject of fiduciary advice, I do want to get a little political. Donald Trump wants to strip the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 – or the Dodd-Frank Act for short. As the full name implies, it’s a law intended to protect you, the investing public, as you navigate the various tributaries within the U.S. financial stream. President Trump also has ordered the Department of Labor to revisit its upcoming Fiduciary Rule, also meant to protect investors (in this case, those saving for retirement) from being tricked by advice that is not in their highest interest.
What’s going on here? Remember Trump saying that he has friends who can’t borrow money? I don’t think he’s talking about dentists who are trying to refinance and lower the rates on their student loans or home mortgages. He’s talking about billionaire clones of himself who want to build skyscrapers, shopping centers, and subdivisions. My take is that these actions are aimed at their interests, not yours.
Advisors who adhere to the fiduciary standard of care must act in the best interest of their clients, even ahead of their own. Independent Registered Investment Advisor firms, by definition, must adhere to fiduciary standards. Laws like the Dodd-Frank Act and the DOL’s Fiduciary Rule have been making progress on expanding that fiduciary relationship to other financial intermediaries – such as brokers, insurance and annuity agents, pension administrators, 401(k) plan managers and others who receive commissions and, therefore, have incentives to sell products that may or may not be in their clients’ best interest.
All those commission-based folks have Donald Trump’s ear. And they do not want to be fiduciaries. They prefer the old, ambiguous standard that states an investment must be “suitable.” What does that mean? I’ve seen so-called suitable portfolios built with 80% stock and 20% bond allocations for aging widows whose best interests clearly called for preservation via low-risk holdings … not Las Vegas-style gambling. But because an investor may have agreed to desiring extra returns (without really understanding what that meant), suddenly a high-cost, high-risk stock venture becomes “suitable.”
Doing what is best for a client is not difficult. It is intuitively correct, and enables an advisor to look in the mirror each morning knowing he or she has done the right thing. Why strip down laws that are making it standard for all advisors to behave in this way?
Dodd-Frankly, I’m not doing myself a big favor by promoting this stance. If fiduciary advice remains available on a limited basis through advisors like me, my partners and my 150-plus fellow members of The BAM ALLIANCE, it’s that much easier for us to set ourselves apart from the rest in a very competitive industry. But that’s not the point, is it? Advancing the fiduciary standard isn’t about me and my fiduciary advisor pals. It’s about you and your life savings.
Enjoy the read about avoiding market-timing as part of your long-term investment strategy. It’s the sort of advice you can expect to hear from a fiduciary advisor. Think about your own circumstances and feel free to call with any questions: