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Does Your Advisor Meet the "Fiduciary" Standard?

Posted by Larry Jones on Dec 18, 2018 9:30:00 AM
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What, me worry?

I grew up in the sixties, and one of my favorite ways to waste time was by reading Mad magazine. You might remember it. Primarily aimed at the non-educated and low-income reader, certainly that description fit me at the time, it was mainly a parody of other forms of entertainment. Mad magazine was usually graced on the cover by a rather goofy looking fellow who went by the name of Alfred E. Neuman. Neuman's favorite words to live by were, "what, me worry?" 

Now there's a lot to be said for keeping your life stress-free and minimizing what you worry about. But when it comes to turning over hundreds of thousands of dollars of your hard-earned retirement assets to a financial advisor, shouldn't you care to know a little about him? I think so.

Recently the Department of Labor began implementing a new rule that requires any financial advisor who works with retirement funds to act in the best interests of the client. The new rule is now on hold, and has yet to be implemented, but even the threat of it, is turning the financial industry on it's ear.


What the heck is a Fiduciary, and why should I care?

The definition of is simple.....it means that the advisor must do what's in the client's best interests. But wait a minute....why is that a controversial rule? Don't all financial advisors meet that standard? Newsflash: most advisors today are not required to act in the best interests of their clients. They are usually only required to meet a "suitability" standard, which often means that if you can afford it, it's suitable for you. That's a much lower level of responsibility.

Here are a few things that are different with the "Fiduciary" Advisor:

He or she has had a higher level of training

It's not possible to acquire the status of "fiduciary" without a great deal of knowledge in all financial vehicles. Some will hold a CFP, ChFC, or CLU designation. These things are not handed out like candy, but involve rigorous courses in financial planning, the tax code, retirement planning, insurance, and investments. This goes far beyond what the typical stockbroker or insurance agent has encountered.

He or she is able to shop around for your best solution

Many financial advisors are considered to be "captive." What that means is that they are employed by a brokerage firm or insurance company, such as Edward Jones or Met Life. Now, if I work for Met Life and I sell you an insurance policy from Prudential, what will happen to me? That's right....I'll probably be fired. But what if the product which best meets your needs as a client is the Prudential policy? You can see the conflict of interest here on the advisor's part. As the client, do you think the chances of getting the best solution for any given situation comes from the "captive" advisor, or an independent fiduciary? That's a no-brainer. The independent advisor has the advantage.

He or she should be in an ongoing training program

The prudent, professional advisor must always be able to document that what they have done is in the client's best interests. In my opinion part of that responsibility is to be in an ongoing training program. The true financial professional never stops learning, and as the industry evolves he or she must stay on top of it. That's always good for the client.

The ChFC, CLU, and CFP designations all require a certain level of experience.

Many advisors can call themselves that (an advisor) as soon as they pass the initial licensing tests. He may have no actual experience at all.  That's not the case with anyone holding one of these professional designations. These folks are true financial planners, and can legally and ethically hold themselves out as such.

 


Turmoil in the Industry

The DOL rule is really causing angst amongst the large financial firms. If you are "captive" how are you going to make the case that you have always, without exception, done what's in the best interests of your client? The potential for litigation is huge. Many older advisors are choosing to retire now, rather than expose themselves to the legal beagles who are sure to come running after implementation. 

There is, however, a good solution for the average investor. Choose someone as  your advisor who meets the standards as set above and you will be a step ahead of the game. You'll be happy, and so will the Department of Labor!

Oh, by the way....did I mention that I am a Fiduciary?

Until next time,

Larry

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Topics: Financial Planning

What you don't know can hurt you!

As a fiduciary I am required to always act in your best interests, and as a professional planner, it's my job to be familiar with all types of possible solutions and financial vehicles. In short, I have no interest in selling any particular product or any affiliation with a particular company. I work for my clients.

Are you:

  • concerned that your tax bill is too high?
  • tired of watching your nest egg decline by significant amounts every 5-7 years?
  • wishing you could find more free time?
  • looking for ways to help protect yourself against litigation that could destroy all you have worked for?
  • worried that Uncle Sam is going to enjoy your retirement more than you are?

If any of the above describes you and you'd like to get a question answered then just click the button below and we'll be in touch.

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p.s. we have the ability to meet virtually regardless of your location! Give us a shout!

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