Building retirement savings, for many, is a huge challenge and seeking the appropriate advice can be very confusing, especially since those selling financial expertise are not all created equal.
Efforts in Washington are underway to help change that — for brokers, advisors and financial planners.
As a result of the Dodd-Frank financial regulatory reform law, the Securities and Exchange Commission is considering applying a uniform standard, or fiduciary standard, to all professionals selling or advising customers on investments, to put their clients' interests ahead of their own.
Earlier this year, House Financial Services Committee Chair Barney Frank, who co-wrote the new law, told CNBC that he wanted to avoid the kind of financial meltdown that deprived so many of their savings.
Frank said, for those making investments through a broker-dealer or investment adviser, "they are going to have much more assurance that the things they have invested in are not being run by manipulative, overly-leveraged institutions." He added, "We are going to have complete registration and regulation of the advisories so that there will be a lot more protection systemically for individuals."
Currently, only investment advisers — not all financial planners — are under a fiduciary standard. Broker-dealers are not fiduciaries; they are only required to make recommendations that are "suitable" for their customers.
The Dodd-Frank law authorizes the SEC to draft a rule on the fiduciary standard. However, regulations regarding a fiduciary or uniform standard for broker dealers may not happen until later this year. After reviewing a study about the potential impact of the legislation, two Republican members of the SEC are questioning the extent to which the study underwent a rigorous economic analysis.
Still, investment advisor Barry Glassman of Glassman Wealth Services in McLean, Virginia cautions that being a fiduciary doesn't mean that all the investments are right. It simply means they are held to the highest standard of advice and client care.
"The fact that your advisor isn't a fiduciary, that doesn't make them a bad advisor. It doesn't mean that all of their investment advice is going to be correct," said Glassman. "It just means that there are potential conflicts of interest. You need to understand what they are and make judgments based upon that."
As the debate over this proposed rule continues, Glassman suggests clients simply ask those offering financial and investment advice: "Are you a fiduciary?" And if not, "what are your potential conflicts of interest?"
Also, make sure to find out exactly how your investment advisor or broker-dealer earns their money. Commissions? Flat-fees? Ultimately what is good for their bottom line, may not always be good for yours.
Watch Sharon Epperson’s “New Retirement” report about financial advisors on Power Lunch today at 1pm ET.