Fiduciary

Your Advisor Should be a fiduciary

Unsure what fiduciary means? That’s OK, most people don’t, but I aim to fix that. Believe it or not, there are different standards of care when it comes to hiring an advisor for financial advice. I think it’s just plain old common sense that your advisor should be a fiduciary.

“As an investment adviser, you are a “fiduciary” to your advisory clients. This means that you have a fundamental obligation to act in the best interests of your clients and to provide investment advice in your clients’ best interests. You owe your clients a duty of undivided loyalty and utmost good faith.”

There it is right from the Security and Exchange Commission website, and it’s one of the provisions of the Investment Advisors Act of 1940. You can read the whole definition here.

Who would want an advisor that doesn’t put his clients’ best interest first?!?!

I know you’re probably thinking aren’t all financial advisors fiduciaries? No, if your advisor is a brokerage firm or an insurance agency, that broker and agent are not held to the legal obligation to act in your best interest. Instead, they follow the “suitability standard.”

That means a broker or agent can sell you an investment or insurance product that is suitable for you but doesn’t have to be in your best interest. That sentence cracks me up so much I want you to read it again, slowly this time.

That means a broker or agent can sell you an investment or insurance product that is suitable for you, but doesn’t have to be in your best interest.

Pay no attention to the advisor behind the curtain

Who are they looking out for? The company they represent. Not you, chump. For example, if you want to invest in the S&P 500, a broker could find a fund that has high expense fees and maybe even a loan (loans are a whole other load of @#$# that I won’t get into here). That fund is certainly suitable, but don’t pay attention to the fact that there are probably 500 cheaper S&P 500 funds out there.

Let me stop right here and say brokers are not on the dark side. They do not report to the death star every morning. This is not a good versus an evil article. I know a number of great brokers, nice people, upstanding citizens, who treat their customers very well. Heck, I’d even let them babysit my children.  I wouldn’t want them to manage my money or give me advice.

Yes, there are bad apples in every business. We’ve all heard stories of fiduciaries that didn’t quite put their clients’ interest first, but 99% of the fiduciary advisors are looking out for their clients’ best interest.

The Fiduciary story gets better

In April 2016 The Department of Labor issued its new fiduciary rule. Now all financial advisors who provide retirement investment advice will be held to a “fiduciary standard” that will require them to put their client’s best interests first. It expands the fiduciary duty to brokers and agents as well. They will be required to disclose fees up front, and it will make it harder for them to sell more expensive, not entirely suitable investments.

This rule won’t happen without a fight. First, many elected officials believe it is ill-advised. Secondly, and not surprisingly, and the National Association of Fixed Annuities and some pro-business groups have filed lawsuits contending this much too difficult for small business to implement and creates a burden.

“I am a small business and I am a Fiduciary”

They are only looking out for their own self-interest. Their interest to sell you overpriced, ill-suited investments without your knowledge. For goodness sakes, doctors, attorneys, and accountants put your interest first. There is no reason in the world that the person that provides you with financial advice shouldn’t as well.

I’m proud to be a fiduciary, but unfortunately, I can count on one hand how many times I’ve been asked if I am a fiduciary. To be more specific, I’m looking at three fingers. The most recent was this past spring.

I want to be asked if I’m a fiduciary every single time I get a phone call or an email from a potential client. That is how every initial conversation should go with your financial advisor. If you have no idea if your advisor is a fiduciary, email or call them right now. The answer may surprise you.

This is one of the most important topics when it comes to financial advice. Please share this to spread the word. You can do so easily via any of the share buttons below.

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