6 second take: Make no mistake, as a financial adviser, you owe your clients good advice and guidance all the time. That, in short explains the fiduciary rule.
Big Brother is watching.No, I am not talking about Big Brotherfrom the George Orwell novel “1984,” or the reality TV show filming the lives of strangers living together 24/7.
My sister and I are one day shy of being exactly three years apart from one another. June birthdays are great, by the way. They usually coincided with the end of the school year and that was awesome. So basically its been my job (for as long as I can remember, anyways) to look out for her, just like a big brother should.
Looking back on it, I'm sure there were times that yes, I deserved the “eye-roll” or some other formof disapproval.
Heck, during the year we were in the same high school together, I had to make sure to bring my “Big Brother A-game” every day. There were people she needed to stay away from (all boys), teachers to connect with (Herm), and lessons of my mistakes to learn from (take the free college courses). Big brother knows best!
I'd like to think that she took every piece of my advice, or the “wisdom” I shared with her to help her be as successful as she is.
I'm kidding, of course. I tease her about it every now and then that I showed her all the thingsnotto do. But she really has been successful, all in her own right and I'm a proud big brother because of that.
A lot of those same big brother tendencies have followed me into my profession. For example, helping people build wealth bymaking sure they have an advocate on their side of the table that is willing to take responsibility for their guidance and do what is best for the client.
It's offensive to me when I see or hear stories about people not being treated with respect or being taken advantage of by someone else calling themselves a “financial adviser.”
For example, I recently came into a situation where some people were sold a product they didn't need and that was certainly not in their best interest.
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Since I didn't know much about thespecificproduct, I had to do a little research.
After some time, I found this little nugget, buried deep in the “legalese” (what is called the “prospectus”) of that product. Read the statement below and answer this question, “Does this sound right to you?”
“To inform yourself of any potential conflicts of interest, ask your financial adviser before you buy how the selling firm and its financial advisers are being compensated and the amount of the compensation that each will receive if you buy the contract.”
“What??” “Huh?” “No, absolutely not.” &“WTF, mate?”are all acceptable answers because it doesn't sound right to me either.
What this firm is basically saying, is this:
“Hey, we know that this might not look so great – I guess you could say we have the foxes watching the hen house here – paying salespeople a boatload in commissions on this complex stuff we sell with high expenses. But if you don't bring it up, that's on you, not us. We gave you this document and you should have known to read it…don't blame us.”
You don't know what you don't know. This is especially true with topics that are either unfamiliar, complex, or flat out boring (I am a bit of a nerd though).
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That being said, companies that are in opposition of the new fiduciary rule that is being put in place, rely on what you don't know.
*gasp* Financial advice to be required to be in a clients best interest? The horror! *gasp*
Using some of my big brother wisdom here, if you're working with a “financial adviser” that isn't a fiduciary, that “adviser” may be able to use a disclosure statement similar to the one above exempting their fiduciary duty – fire them immediately and start working with a fiduciary as soon as you can, you wont regret it.
Here are two resources you can use to find one in your area:
XY Planning Network
NAPFA – The National Association of Personal Financial Advisors
Thoughts on the topic?Feel free to discuss and share!
FAQs
1. Your adviser isn't a fiduciary. When a financial adviser is a fiduciary, that means they're "legally obligated to act in your best interest," according to Kiplinger. This designation is essential to feeling secure that an adviser is putting your financial goals ahead of their own bottom line.
What if my financial advisor is not a fiduciary? ›
If your financial advisor doesn't have a fiduciary duty to you, they may be able to recommend investments or products that pay them a bigger commission over ones that would be the best fit for you, which could cost you more. Fiduciaries, on the other hand, must act in your best interest.
When should you fire your financial advisor? ›
Bad advice leads to poor performance: One of the most glaring signs that it's time to let go of your financial advisor is poor performance in managing your investments. If you find your portfolio consistently underperforms compared to the market, it's a red flag.
When should I dump my financial advisor? ›
Poor performance, high fees, strained communication and stagnant advice are among the reasons to look for a new advisor.
Is it better to have a fiduciary financial advisor? ›
This is in contrast to non-fiduciary advisors who earn commission and, to put it bluntly, are incentivized to focus on their own bottom line over yours. By working with a fiduciary, you can have peace of mind that the advice you're receiving is unbiased.
What is the downside of using a fiduciary? ›
A disadvantage of a fiduciary is that fiduciary advisors are often more expensive than non-fiduciary advisors as they charge higher market rates.
What percent of financial advisors are fiduciaries? ›
Of the 385,058 Registered Investment Advisors (RIA) in the U.S., 307,590 of them are Dual-Registered Advisors. This means that only 69,482 RIAs are true fiduciary investment advisors without this huge conflict of interest. This represents only 11.2% of the 689,925 financial advisors in the U.S.
What is a red flag for a financial advisor? ›
On the other hand, fee-based or commission-based compensation structures can both be financial advisor red flags. These advisors may earn part or all of their compensation in sales commissions. In other words, they may be more incentivized to sell products than give advice.
How do I politely fire my financial advisor? ›
I want to thank you and express my appreciation for all your help over the past few years with my personal finances. At this time, I've decided to move my accounts to another advisor that I feel is a better fit for me as of (end-date).
What happens if you fire your financial advisor? ›
Expect a Few Fees If You Fire Your Financial Advisor
In a taxable account, if commissions are high at your old brokerage, transferring them in kind to your new brokerage prior to selling can save you a lot of money. You may also owe some advisory fees, depending on your contract with the advisor.
The Pareto Principle emphasizes that 20% of your efforts generate 80% of your results. Therefore, identify the 20% of your expenses or investments that bring 80% of your wealth growth, and cut down on non-essential expenses to maximize savings.
What to do if you are unhappy with your financial advisor? ›
Complaints about financial advisers
You can't complain to a financial adviser if your investment doesn't make as much money as you'd hoped. But if you have lost money because of bad advice, wrong or misleading information or poor administration, you can complain to the adviser who originally gave you the advice.
What to avoid in a financial advisor? ›
If a financial advisor you previously trusted exhibits any of these behaviors, it is worth having a conversation with them or even considering changing advisors altogether.
- They Ignore Your Spouse. ...
- They Talk Down to You. ...
- They Put Their Interests Before Yours. ...
- They Won't Return Your Calls or Emails.
Non-fiduciary advisors are bound by the suitability standard, meaning they must provide recommendations that are appropriate for your situation, but not necessarily the best possible option available.
Can you trust a fiduciary? ›
A fiduciary is bound by law or oath to put their client's interest ahead of their own, meaning those who engage a fiduciary should be able to fully trust them.
How do fiduciaries get paid? ›
The fees fiduciary advisors receive often are calculated based on the value of the assets they manage on a client's behalf. Fees also may be charged on an hourly, project or subscription basis.
Do all financial advisors have a fiduciary duty? ›
Do All Financial Advisors Have a Fiduciary Duty? Just because a professional manages the money of their clients doesn't mean that they automatically follow a fiduciary duty. Some professionals work for brokerage firms that aren't registered as investment advisors, and as a result, are not bound by fiduciary duty.
Do I really need a fiduciary? ›
Not everyone needs a fiduciary.
While the fiduciary designation is a good sign of an advisor's good intentions, many nonfiduciaries have long and trusting relationships with clients and may be a better fit for your financial needs. Fiduciaries typically charge a percentage of assets annually.
What determines if an advisor is a fiduciary? ›
Fiduciary advisors have the legal obligation to act in the best interests of their clients, disclose any potential conflicts of interest, and provide advice that aligns with the client's goals and financial situation.
Why aren't all financial advisors fiduciaries? ›
Many advisors are held to a suitability standard rather than a fiduciary standard. The suitability standard of care is lower than the fiduciary standard of care. Under the suitability standard, an advisor must recommend products or strategies that are suitable for the client.
