Note: This article is courtesy of Iris.xyz

By Brad Sherman

In his song “Real Friends” musician Kanye West raps, “Real friends. It’s not many of us. We smile at each other. But how many honest? Trust issues.” West wonders whether those around him are there because they really have his best interests at heart, or if they only care about him for his money.

Given recent developments in the financial advisory industry, many Millennials might be wondering the same thing about their financial advisor. The Department of Labor (DOL) will soon be enacting a new rule that requires all financial advisors handling a retirement account to abide by a fiduciary standard, which means always acting in the best interests of the client and not the advisor’s or corporation’s profits. It might be surprising, but that is currently not always the case. If your advisor is not a fiduciary, he or she may not be obligated to act only in your best interest.

Related: Millennials Are More Likely to Own ETFs

Opponents of the rule, unsurprisingly mostly financial advisors at big banks, say that it will decrease access to financial advice for small investors since advisors, “cannot figure out how to make money when working with them.” Without the fiduciary obligation, how do advisors currently profit from younger investors? Forbes recently published an article by the Morgan Stanley team where advisor T. Gregory Naples says that with Millennial clients he, “starts them out in managed mutual funds until they reach $50,000. After that, he often switches them to more transparent and lower-cost stock and bond funds managed by institutional money managers.”

Breaking it Down

This is a huge admission. Let’s break down exactly what Naples is saying. Crucially, Naples admits that, until you hit $50,000 assets under management (AUM), he invests your money in expensive, inefficient funds that line his own pockets with commissions. Then, once your AUM gets to a point he can make money off of you through fees rather than commissions, he puts your money into more efficient places it should have been all along.

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