The concept of DOL Fiduciary rule as it applies to Credit Card Sales

Some of you may be aware that the Dept of Labor recently passed a revision to how retirement accounts must be managed, applying a Fiduciary rule to the management of these accounts.Previous to this adjustment, such accounts were subject to the ‘Suitability’ rule.

Suitability vs Fiduciary – regarding financial ‘advice’

Steve walks into a bank and informs the broker, who may have a title of ‘advisor’ on their business card, that they wish to invest in a stock fund.  The broker finds a ‘Suitable’ fund for Steve, which is a stock fund, but comes with a 5.25% front load fee and annual 1% fee that are used to compensate the broker.  The advice to purchase the fund passes the Suitability Standard, as it is a stock fund, as the client wanted. Further due diligence, such as checking the risk tolerance, and other things for the client still make it just ‘Suitable’. Let’s call the fund XXX, it tracks the S&P 500.

The next day, Steve instead walked into the office of an advisor who is held to the Fiduciary standard, he tells the advisor he now holds the XXX fund.  The advisor informs him that while the fund is suitable in terms of meeting the criteria of being a stock fund, there is another version of this fund, called SPY, which also meets his criteria of being a stock fund, but doesn’t pay the advisor a commission, does not have a 5.25% load fee, and has a 0.11% annual fee instead of 1%.  The Fiduciary advisor informs Steve that both funds may achieve his goal, but one costs a lot less, and therefore might be the better choice for him.  The Fiduciary advisor has a goal of putting the client’s best interest above their own, whereas the Suitability advisor simply sells a product that fits their criteria.

Because of deliberate and intentional obfuscation of the above Suitability and Fiduciary roles, consumers are often left confused about the situation, and rarely know when they’ve been sold something. 

The Credit Card Game (AKA $$$$)

Credit Cards are actually an even better example of this standard in action. Let’s look at the Southwest Credit Card from Chase.

Steve, the unfortunate chap that he is, reads about the Southwest Card and decides that based on his habits, he should apply for one and travel the world for free.  He does a quick google search and comes across a site by Jeff Rose, CERTIFIED FINANCIAL PLANNER (TM) and reads this post in February and and follow up post in April. 

Both posts explain the card and its features:

With this card, you’ll earn 25,000 Southwest Rapid Rewards points after you spend just $1,000 within 90 days. That’s enough miles for at least one round-trip flight within the continental United States, and maybe two if you’re judicious in how you use your miles. Source – Good Financial Cents.  It comes with an annual fee of $99. 

Steve signs up, and is excited to bag his 25,000 miles!

The next day, Steve walks into the office of the Fiduciary advisor and tells him all about his new credit card.  The advisor asks if he was aware of a direct offer from Chase?  This offers 50,000 miles instead of 25,000, but does require that he spend $2,000 in the first 90 days rather than $1,000.  The fee for this card is $69 instead of $99.

Steve is confused.  Surely this would be mentioned on the site?

Upon closer examination, Steve notes that the two posts weren’t written by Jeff, but rather by freelance writers who also write for sites that sell credit cards for commission.  But he couldn’t see any mention of compensation for using the application links on this site.  Why would a CERTIFIED FINANCIAL PLANNER (TM) want to educate people about flying Southwest using credit cards, and pay a freelancer to produce the content?

Why would the posts, who were written by professional freelancers in the credit card sales industry, not mention the other offer?

Why are the links that are attached to the inferior offer redirecting not to Chase, but to a third party site with affiliate tracking codes?

Conclusion

The selling of credit cards for a commission has moved from the Travel space and into the Personal Finance space, and you will see many more examples of people following what could be considered the Suitability standard in order to shift more product.  In the financial advisor world you can (AND MUST!) ask if someone is following the Fiduciary standard, but in the Credit Card sales world the laws don’t seem to apply, so you somewhat have to find someone you can trust to advise you. Unfortunately, it seems that there are not any certifications that will help you with this, as there are a number of people who hold designations like CPA or CFP that are in the game of selling plastic.

As a consumer, my advice for you would be to be particularly wary of any blog or blogger who writes about the virtues of a credit card.  They could be travel bloggers, or a finance blogger who suddenly shares a ‘FREE’ trip, or anyone who suddenly is passionate about a very specific card or product.

I would be very careful of clicking links in any site, they aren’t just there for your convenience, but to earn a payment.

If you are adamant that you want a credit card based on what you have read do the following:

Search Google with the name of the card (eg Chase Southwest) and append the following variations:

• Chase Southwest 50,000
• Chase Southwest 50K
• Chase Southwest 60,000
• Chase Southwest 60K
• Chase Southwest ETC…

That will help find the offers.  Also a great resource is this page from the guys at Reddit Churning.

Hopefully this post will help the credit card churners understand a bit more about the Suitability standard in finance (it is alive and well so always ask!) and the finance folk a bit about the credit card selling game.