Choose a financial adviser who is obligated to give good advice

In case you haven’t heard, Johnny Depp is in deep. Deep financial trouble.

As reported in The New York Times, despite lifetime earnings of nearly $650 million, Depp has not paid his taxes on time, has had to cough up nearly $6 million in interest to Uncle Sam, has made bad loans and bad investments, and is having trouble covering his recent divorce costs. And by the way, he also owns 14 houses around the world and an island in the Bahamas. For now, anyway.

Back taxes and Bahamian islands

Depp blames his money woes on his financial advisers at the Management Group, whom he’s suing. Depp claims they “engaged in years of gross mismanagement, self-dealing and at times, actual fraud” and all the while he trusted them “as a loyal fiduciary and prudent steward of his funds and finances.” The Management Group has countersued, claiming they “did everything to protect Depp from his own irresponsible and profligate spending.” How irresponsible and profligate? Two million dollars a month, or so they say.

Putting another’s interests above your own

That word “fiduciary” is our focus here. A fiduciary is someone to whom property or power has been entrusted for the benefit of another. In 1974, Congress enacted the Employment Retirement Income Security Act (ERISA), which established that employers and their employee benefit plans’ investment managers have a fiduciary responsibility to their participants. The participants’ interests must come before their own.

Pretty straightforward, right? As a matter of course, anyone involved in providing me any kind of investment advice is putting my interests above their own, right?

Uh, no. Not necessarily.

Fiduciary vs. suitability standard

Brokers, also known as broker-dealers, are primarily in the business of buying and selling securities, transactions upon which they make a commission, though they also provide financial advice. They’re legally bound to a lower standard in their client relationships, that of suitability. They must prove a product is suitable for a client, though it might not be the best product for them.

Fee-based advisers and Registered Investment Advisers (RIA), such as my firm, are under the fiduciary standard. They offer advice with their client’s best interests in mind at all times and are paid for that advice — not for conducting transactions.

The new law of the land — maybe

Doesn’t sit well with you? It didn’t sit well with former President Obama either. In 1974, there were no 401(k) plans and IRAs had just been created, both of which are for retirement, and there’s been no law providing a consistent standard of conduct for all the many professionals giving advice on all these accounts. So in 2015, Obama proposed a major overhaul to the financial industry. In 2016, the Department of Labor issued the new Fiduciary Rule. All financial professionals working with retirement plans or providing retirement planning advice will be ethically and legally bound to the fiduciary standard beginning April 10, 2017.

However, President Trump issued an order on Feb. 3 to delay the rule’s implementation. He’s instructed the Department of Labor to carry out an economic and legal analysis of the rule’s potential impact. As of now, the new Fiduciary Rule is in limbo.

But your retirement doesn’t have to be. Make sure you trust whomever is giving you advice. If you don’t easily trust others — a good habit to have when it comes to your money — find an adviser who is under a fiduciary obligation to you and take an active role in understanding the advice you’re getting.

Jennifer Pagliara is a financial adviser with CapWealth Advisors. Her column appears every other week in The Tennessean.