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The Fiduciary Standard

Monday, November 7th, 2016

The Department of Labor is introducing a new rule regarding retirement plan accounts, which will be phased in during 2017 and fully implemented by 2018. Under the new rule, financial professionals who consult retirement savers will be held to a fiduciary standard. In other words, they will have an ethical and legal obligation to always act in a client’s best interest.

Kendall Capital has abided by a fiduciary standard since 2005. Roughly 8% of financial advisors abide by the fiduciary standard, but thanks to the new rule, even more will. In fact, the fiduciary standard may soon become the “new normal” in the financial services industry.

However, the fiduciary standard has not always been the “gold standard.” Historically, investment professionals have been asked to uphold a suitability standard when making recommendations to their clients. Under the suitability standard, financial products are recommended considering a client’s age, income, net worth, and savings goals. Many in the brokerage industry believe this standard has been adequate.

The Department of Labor disagrees. In its view, the suitability standard creates conflicts of interest affecting client-advisor relationships. In theory, many investments or products could be found suitable for an investor, and the one most recommended could be the one that results in the largest commission for the financial professional offering the advice. So, which financial services professionals uphold a fiduciary standard and emphasize fee-based or fee-only planning?

As a Registered Investment Adviser (RIA), Kendall Capital works by the fiduciary standard. RIAs are regulated by the Securities and Exchange Commission and/or state securities authorities, and charge their clients fees for most or all of the services they provide. At Kendall Capital, we are fee-only meaning our only form of compensation is the fees paid by our clients. We receive no compensation or commission for the products we recommend for our clients.

CERTIFIED FINANCIAL PLANNER practitioners also uphold a fiduciary standard. These individuals abide by the code of ethics and rules of conduct articulated by the CFP® Board of Standards in Washington, D.C. They are directed to provide their financial planning services as fiduciaries. At Kendall Capital, we have two CFPs® including Clark Kendall and Carol Petrov.

Sometimes, the decades-old compensation structure of the financial services industry can impact even those financial professionals serving as fiduciaries. For example, a CFP® practitioner or an SEC-regulated investment adviser may also sell insurance products that provide commissions, and help clients invest in certain brokerage accounts linked to commissions.

In short, the financial services industry is not perfect. The new Department of Labor rule demanding a fiduciary standard from the professionals advising retirement account holders takes a big step toward remedying some of its imperfections.

Picking a President Is as Difficult as Picking a Soccer Coach

Friday, August 12th, 2016

The current presidential cycle is one of the most unconventional election cycles ever experienced. For me, voting for the next U.S. President is like choosing a soccer coach for my teenage daughter. One option is “Coach Clinton” who will provide everyone equal playing time and will make sure that each team member’s mother brings a snack after the game. I am not sure how many games the team will win, but I am fairly confident that we will have a great party at the end of the season no matter how well the team performs.

The second option is “Coach Trump,” who will not likely give equal playing time to the players but will only put the best ones on the field (unless they’re Mexican or Muslim – those players wouldn’t get to play no matter how good they were). He wouldn’t care about snacks at the end of the game or whether the kids had fun. However, I do expect the team would perform well on the field and most likely have a winning season. Though, if there is ever a coach that would get in a fight with a referee or the other coach, it would be “Coach Trump.”

The reality of this hypothetical choice lies in the amount of funding the coach can raise for the team. The way I see it, whoever has the most money will have the advantage in terms of advertising and promoting their message to voters. In fact, the last time a candidate with the most campaign money lost was in 1976 when Gerald Ford lost to Jimmy Carter. Currently, the Clinton campaign is outraising Team Trump by a 3:1 margin. According to Federal Election Commission (FEC) filings, Trump has raised roughly $37 million in individual contributions, and Clinton has raised roughly $231 million in individual contributions (individual contributions include contributions made by individuals, Native American tribes, partnerships, sole proprietorships, LLCs, PACs, Super PACs, and Hybrid PACs).

As you can see from the chart below, there’s been a huge incremental increase in donations since 2000. The outrageous campaign spending started following the 2010 Citizens United case when the Supreme Court upheld a corporation’s (and union’s) ability to donate unlimited amounts of money to help persuade voters while not donating directly to campaigns. After Citizens United, the SpeechNow.org vs. FEC case led to the creation of “Super” PACs (Political Action Committee) which could accept these donations and are allowed to use the money to create commercials and advertisements so long as they don’t directly coordinate with the campaign. Super PACs get to publish the negative ads while the candidate stays squeaky clean and act as shadow campaigns for the candidates.

So, who’s going to win the U.S. Presidential election in November? Well, if history repeats itself, Secretary Clinton will win because she has more money. However, if voters decide what kind of coach they want for their kids based on the candidates’ personalities, experience and track record, we may find ourselves with another nail-biter like the 2000 election. After all, money isn’t everything, just look at the Refugee Olympic Team. They’re competing out of sheer grit and determination without the money and resources of a stable homeland.

politics

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Please be aware that you are leaving www.kendallcapital.com and will be redirected to a third party website. Kendall Capital has no control over information at any third party site accessed from www.kendallcapital.com. Kendall Capital makes no representation and is not responsible for the quality, content, nature, or reliability of any linked site. The inclusion of any link does not imply endorsement, investigation, verification or monitoring by Kendall Capital. In no event shall Kendall Capital be responsible for your use of a third party site. Thank you for visiting Kendall Capital's website.