There are a couple of different ways to pay for investment advice.  There is a fee adviser who charges, hourly or a percentage of assets, and there’s a commission adviser who gets paid on trades or commission.

I’m a big fan of the fee-based platform. Everything I do on the investment side with mutual funds, stocks, bonds, those types of things are fee based.

President Obama has asked the Department of Labor to issue a rule redefining how you get and pay for advice. The ruling will probably come in the next 30 to 60 days.

You may have heard of the fiduciary standard. I am held as an investment advisor to the fiduciary standard. It’s a fancy legal word, but it means I have to always act solely in the best interest of my clients, and I have to always look out for the best interest of my clients because I charge a percentage. In an hourly arrangement, you have to always act in people’s best interest but usually it’s not as proactive because they’re only working for you when you pay them to work for you, which is why I like the percentage arrangement. I’m held to a fiduciary standard. Your typical commission based stock broker is not held to a fiduciary standard. They have to make suitable recommendations for clients but not recommendations solely in the best interest of clients.

The ruling could go as far as say you can’t have a conflict of interest. That would have a tremendous impact on the industry. For example, I would have to charge the same fee for a mutual fund as I would for a bond. Otherwise, that would be a conflict, as opposed to me just disclosing a conflict and having a different fee for those two types of things.

One problem with this is how do you enforce it? The IRS is the enforcement arm of the Department of Labor. Do you think the IRS has the resources to go around and audit financial advisory firms around the country?

The biggest concern here and what many in the industry are very worried about is it sounds good in theory, but it’s probably going to remove access to good professional advice, especially for many lower and lower middle class investors. Advisers will find it difficult to make a profit serving because of potential liability costs.

You owe it to yourself to understand the differences in how advisers are regulated and how they are compensated.