Why You Should Care About The Fiduciary Standard

There has been a great deal of media attention surrounding the Department of Labor’s (DOL) recent ruling regarding the “Fiduciary Standard,” and with good reason. Tony Robbins, self-help author and motivational speaker, recently asked random people walking down Wall Street, “What is a fiduciary?” With the exception of one individual, the answer was, “I don’t know.”

This made me wonder – Do our clients understand the benefits of working with a fiduciary?

When Smedley Financial Services, Inc.® began back in 1982 as a registered investment advisor, we became a fiduciary. We have always believed that putting our clients’ interests before our own is the best way to create a lasting partnership with the people we serve.

fiduciary standard

What is the Fiduciary Standard?
The Fiduciary Standard requires that we avoid conflicts of interest. Our recommendations must meet your needs and be in your best interest.

In contrast, financial professionals such as brokers, insurance salespersons, and other advisors operating under the “suitability standard” are merely required to ensure an investment is suitable for a client when purchased. There is little obligation to offer a better investment nor a requirement to monitor those investments in the future.

Why the big concern?
As company pension plans have diminished, Americans now must set aside more of their income to help supplement their own retirement income. This can be a daunting, time consuming task.

At the same time, the retirement investment landscape has only grown more complicated. Lack of investor savvy and awareness regarding retirement account types, not to mention the emerging number of investments available within those accounts, has led investors to rely on the counsel of professionals.

Unfortunately, not all professionals are alike. The new DOL rule seeks to level the playing field, requiring all financial professionals to follow the new Fiduciary Standard. Isn’t it sad that a law must be put in place forcing financial professionals to do the right thing?

Will the rule protect investors?
The new DOL rule will require more work for financial professionals, but hopefully it will also protect investors saving for retirement.

The DOL also states that cheaper is not always better. Price cannot be the only determining factor when making a decision, especially one as important as your financial future.

Consider what you are getting for the fee you are paying. Does your fee include an advisor that will help you determine your financial goals, prioritize those goals, and design a plan to help reach your goals? Will you get ongoing monitoring of your goals and the investments you are making? What if something changes? Who will be there to help address the changes in your life that may impact your financial destiny? What will happen during periods of increased market volatility and who will help you determine if your investments are too aggressive or too conservative?

These are just a few of the concerns that must be considered, but are often overlooked when the primary focus is having lower fees.

You are our primary concern. We invite you to call or come in and sit down with us anytime you have questions. We welcome your call.

Americans Are Taking Control of Their Money

Do you remember what America was like in 2006? If we could give the year a financial theme, I would label it, “Borrow and Spend!” Buying a home was easy; no verification of employment and no down payment were necessary. An interest-only loan could be obtained without any reasonable expectation of one’s ability to repay the loan.

As a matter of fact, you could borrow up to one-hundred percent of a home’s value, skip a month’s payment, and even cash out any value that had come from the rising price of the home. Leverage was the hot financial fad! Many Americans borrowed as much as they could and bought whatever they wanted!

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What a difference ten years can make. Contrast 2006 with 2016; today people are taking control of their financial situations, putting themselves in the driver’s seat, and keeping their own hands on the steering wheel. Financial responsibility is much more prevalent.

Disposable income —the money we have left to spend after taxes have been paid—has increased at an average rate of just less than one percent per year over the past ten years. So income is up a little. This makes the fact that personal saving is up very impressive. We have seen the personal savings rate increase from 3 percent at the end of 2005 to 5.5 percent at the end of 2015.

This significant improvement demonstrates a shift for Americans towards greater financial strength. Here are some of the positive outcomes.Americans saving

Reduction in personal debt
Still smarting from the financial pinch of the last recession, cash flow is now king. For many of us the perception of acceptable levels of debt has changed significantly. Debt is financial fragility, which is why Americans again recognize the value of getting out of debt as quickly as possible. Many have taken advantage of low-interest rates and refinanced to shorter-term loans. Paying off short-term loans such as car loans and signature loans is now a priority, and the use of credit card debt has reduced significantly.

Spending less
Knowing what we should do and putting it into practice can be challenging. This is especially true when it comes to living within your means. However, it is possible and it is powerful. No other financial habit is more important!

We have had the opportunity to meet with many people that have adopted the philosophy of a simpler lifestyle. This allows them to enjoy what they have without the pressure to get more “stuff” and then live with the financial burden. Managing spending also impacts our future lifestyle. If we spend everything today…what will we live on in retirement?

Increased accessible savings
After experiencing financial instability, many people have gained a witness of the need for liquidity. Access to emergency money to cover needs for 3 to 6 months has been widely recommended for decades, but it has gained new favor in the last 10 years. The wisdom of this applies beyond those still working. Retirees are also paying attention to liquid savings to make sure they can cover the unexpected emergencies that will surely come.

Focus on planning for the future
A shift has taken place in young people as well. They are saving for their futures at the beginning of their careers. Company-sponsored retirement plans such as 401(k) or 403(b), as well as individual IRA or Roth IRA, are now common to this young generation and they are off to a strong start.

Financial Health

Those who see retirement on the horizon have a new goal. They want to maintain a comfortable lifestyle throughout their retirement years. With fewer pension plans providing retirement income, the burden to provide income during retirement has been shifted to them. Many have hit the ceiling on contributing to their retirement plans and are using additional savings to help them reach their goals.

It is clear that over time all things can change; the market, our spending and savings habits, even our perception of what’s important financially. We have learned many valuable lessons and have made significant strides to improve our financial situations. The next ten years will undoubtedly bring more changes; some will be good and some will be bad. Remember to prepare when times are good and don’t fall prey to the next financial fad. Keep in mind that you are in the driver’s seat.