Looking Beyond The Fiduciary Stamp Of Approval
I would like to think that the people who previously did not want to act in someone's best interest will now just leave the financial industry. (Why work in a job where you are supposed to help people with their finances, if you don't plan to do what's in their best interest, anyway?) Unfortunately, many of those financial professionals who were previously more interested in their own best interest will not be fleeing the industry, they will simply be trying to adapt to what the new law requires of them.
Folks, this means the onus is on you. This new rule paints the industry with a broad stroke and it's your job to dig through the details and find out what your advisor is required to do, and if they are the right advisor for you.
In order to help you folks do that, I thought we would take the time we have together this week to suggest some questions to ask that may help you through this discovery process.
The first and most obvious one is, "Do you operate under the fiduciary standard?" Yes, anyone dealing with retirement investment accounts is now required to operate under the standard, but there are many people out there whose business is concentrated in insurance products only and may limit their offerings to products that do not require adherence to the fiduciary standard.
Another question is, "If you do operate under the fiduciary standard, how long have you done so?" If a financial professional has started operating under the new standard recently, only because it is now required, he or she might not be a great fit. Don't just settle for someone who is being forced to act as a fiduciary. The bar is set higher now. Ask for references, look for memberships to organizations like the Better Business Bureau, read content that he or she has written to make sure his or her investment philosophy matches yours. You wouldn't buy a car just because it has a "Great Value" sticker on the windshield, would you? Dig deeper.
Another big question that many people don't know to ask is, "Who is managing my investments?" Most financial professionals help you create a holistic plan for you financial success but oftentimes use a separate firm to actually manage the investments. So, you might love your financial advisor and his or her philosophy, but without asking this question, you might not have a clue who is managing your money and what investment philosophy is being used. Make sure they can provide a clear picture of the money managers, their philosophy, their past performance and why they choose to work with them to help you reach your financial goals.
Lastly, one of the most important questions to ask is, "How and what are you paid?" The other day, I was sitting across my desk from a nice couple who was looking for a new financial advisor. As I was about to start explaining our fee structure, I noticed them looking back and forth at each other. I could tell there was something on their minds, so I pushed them a little to voice their concerns. Finally, the woman asked shyly what I would be paid from their business. I was blown away; she should not have hesitated to ask me that question! It is a question that everyone should be asking when they consider using an advisor. I happily answered her question and explained the difference between various advisory fee structures, including flat fees, fees based on a percentage of assets, and commissions. I also urged them to take a close look into their current fees, outside of those advisory fees. Many people don't realize that in addition to the advisory fee, there are fees associated with different investment vehicles and money managers, as well as processing and transaction expenses. While there is nothing for free out there, you need to know what you are paying for.
Folks, like I said earlier, the bar has been raised. The fiduciary standard is no longer a distinguishing feature between financial professionals. It's your job to not only find an advisor who's required to work in your best interest, but also an advisor that has your best interests at heart.
Questions? Comments? Ask David!
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by radical promoting and their editorial staff based on the original articles written by jeff cutter in the falmouth enterprise. This article has been rewritten for David Gaylorand the readers of David's Family Finance. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.